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Q: Insurance settlement taxable by the IRS? ( Answered 5 out of 5 stars,   1 Comment )
Question  
Subject: Insurance settlement taxable by the IRS?
Category: Relationships and Society > Law
Asked by: grammatoncleric-ga
List Price: $4.00
Posted: 06 Mar 2004 01:27 PST
Expires: 05 Apr 2004 02:27 PDT
Question ID: 314005
*Disclaimer* I understand GA is not liable for tax advice and cannot
substitute for advice from a tax professional.

Is an insurance settlement check considered income by the IRS?  This
seems like a stupid question, because I'm sure it is, but I'd like
documentation or sourcing to show me.

Facts:
This settlement was from an auto insurer who was paying because I was
the passenger in a vehicle that was struck by a hit-and-run driver. 
The insurance company of the driver of the car I was in settled with
me for medical expenses.
Answer  
Subject: Re: Insurance settlement taxable by the IRS?
Answered By: hummer-ga on 06 Mar 2004 06:03 PST
Rated:5 out of 5 stars
 
Hi grammatoncleric,

I have good news! Briefly, compensation received for physical injuries
are not included in gross income, as per the "personal injuries"
exclusion found in IRC Section 104(a)(2).

"Do not include in your income compensatory damages for personal
physical injury or physical sickness (whether received in a lump sum
or installments).
Damages for emotional distress due to a physical injury or physical
sickness are not taxable.
Punitive damages are taxable. It does not matter if they relate to a
physical injury or a physical sickness.
For additional information, refer to Publication 525, Taxable and
Nontaxable Income, or Tax Topic 422, Nontaxable Income."
http://www.irs.gov/faqs/faq-kw22.html

Topic 422 - Nontaxable Income:
- Accident and health insurance proceeds
http://www.irs.gov/taxtopics/tc422.html

Publication 525: Other Sickness and Injury Benefits: Other compensation:
"Many other amounts you receive as compensation for sickness or injury
are not taxable. These include the following amounts:
Compensatory damages you receive for physical injury or physical
sickness, whether paid in a lump sum or in periodic payments."
http://www.irs.gov/publications/p525/ar02.html#d0e6473

Additional Links:

"Internal Revenue Code, Section 104, Compensation for Injuries and
Sickness: This section of the Code allows claimants to exclude from
their gross income monies received for physical injuries or sickness
whether by suit or agreement and whether as lump sums or as periodic
payments... The text of IRC  104 is excerpted as follows:
(a) In General: Except in the case of amounts attributable (and not in
excess of) deductions allowed under section 213 (relating to medical,
etc., expenses) for prior taxable year, gross income does not include:
  (1) [deleted]
  (2) 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 physical injuries or physical
sickness..."
http://www.structuredsettlements.org/artman/publish/article_5.shtml

"The tax-exempt status is pursuant to the Internal Revenue Code (IRC)
Section 104(a)(2). This provision of the tax law states:
Gross income does not include [...] 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
physical injuries or physical sickness."
http://www.prudential.com/productsAndServices/0,1474,intPageID%253D1369%2526blnPrinterFriendly%253D0,00.html

"Under IRC Section 104(a)(2), the amount of (non-punitive) damages
received on account of personal PHYSICAL injuries is not included in
gross income."
http://www.financial-planning.com/wwwboard8/messages/7434.html

How's that for a birthday present? If you have any questions, please
let me know and I'll try to assist.

Thank you,
hummer

I searched the IRS site and Google.

insurance settlement check taxable
"Internal Revenue Code, Section 104" site:.gov
irs " Section 104" site:.gov
" Section 104" site:.gov
"irc section 104(a)(2)" irs
grammatoncleric-ga rated this answer:5 out of 5 stars and gave an additional tip of: $3.00
*How's that for a birthday present? If you have any questions, please
*let me know and I'll try to assist.

How did you know it was my birthday this month?  Good intuition,
Hummer. :)  Thank you for the sources.

Comments  
Subject: Re: Insurance settlement taxable by the IRS?
From: hummer-ga on 08 Mar 2004 16:44 PST
 
Ha! I didn't have a clue about your birthday - I guess I should've
said "How's that for a non-birthday present?". Thank you for your
non-birthday present too, I appreciate it. Sincerely, hummer

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