Taxable income

So since we do not know what the class action lawsuit is, I will answer the question this way.   The following comes directly from this link: Tax implications of settlements and judgments 

The general rule regarding taxability of amounts received from settlement of lawsuits and other legal remedies is found in Internal Revenue Code (IRC) Section 61.  This section states all income is taxable from whatever source derived, unless exempted by another section of the code.

• IRC Section 104 explains that gross income does not include damages received on account of personal physical injuries and physical injuries.
• IRC Section 104(a)(2) permits a taxpayer to exclude from gross income "the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or physical sickness.
• Reg. Section 1.104-1(c) defines damages received on account of personal physical injuries or physical sickness to mean an amount received (other than workers' compensation) through prosecution of a legal suit or action, or through a settlement agreement entered into in lieu of prosecution.

From experiences most class action lawsuits do not involve personal physical injuries and physical sickness so the proceeds would most likely be taxable.   There have been mass tort (A tort is a civil wrong that causes harm to a person or property, and is the basis for tort law.) cases that do involve personal physical injuries and physical sickness though.  

Thank you for the opportunity to answer your questions @waltjam

All the best,

Marc T.

TurboTax Live SelectTime Tax Expert

Money received from a Settlement Administrator from a class action lawsuit is taxable income.  Typically, you will receive 1099-MISC for this type of income.  However, even if settlement administrators do not issue a 1099, this income needs to be reported. 

If you receive a 1099-MISC, then enter this income in the Wages and Income section>Other Common Income>Income from 1099-MISC>

Enter your 1099-MISC information. At the end of the questions, TurboTax will ask if any of these uncommon situations apply? Check the box that "This was money from a lawsuit settlement."

If you do not receive a 1099-MISC, then add the income in Wages and Income>Less Common Income>Miscellaneous Income>Other reportable income>  

You will see in this section an example for court settlement income.

Either way, this income will be correctly reported as taxable income on your tax return.