I these questions we have been assuming the insurance proceeds came
from the defendants Ins Co.

What if the proceeds come from the plaintive's Ins Co. under his under
insured coverage.

Does this make it more like life insurance proceeds??



N Nichols

- quote -

The U.S. Supreme Court squarely addressed the taxability of punitive damages
in O'Gilvie v. United States, 519 U.S. 79 (December 10, 1996).

The question before the Court was:
Does the exclusionary provision of 26 USC section 104(a)(2), which excludes
from gross income the "amount of any damages received... on account of
personal injuries or sickness," apply to punitive damages received by a
plaintiff in a tort suit for personal injuries?

The Supremes answered the question as follows in a 6 - 3 ruling:

No. In a 6-3 opinion delivered by Justice Stephen G. Breyer, the Court held
that the punitive damages received by the O'Gilvies were not received "on
account of" personal injuries," and therefore the provision did not apply
and the damages were taxable. Agreeing with the Government's definition,
Justice Breyer reasoned that the exclusionary provision applied to those
personal injury lawsuit damages that were awarded by reason of, or because
of, the personal injuries, and not to punitive damages that do not
compensate injury, but are private fines to punish and deter reprehensible
conduct. Justice Antonin Scalia, who was joined by Justices Sandra Day
O'Connor and Clarence Thomas, dissented.

http://www.oyez.org/cases/1990-1999/1996/1996_95_966/

=================

In light of the above ruling by the highest court in the land, the
taxability of punitive damages is a settled issue of law.

I can't speak confidently about California law but I strongly suspect they
follow the feds on this issue.



Condor

<removeps-groups[at]yahoo.com> wrote:

- quote -

Most states start with Federal AGI and work from there. If yours is one of
them, check the "Adjustments to Federal AGI" section of the instructions to
see if there's a way to back it out on your state return. It's probably
also taxable for the state.

- quote -

Publication 525

--
Phil Marti
Clarksburg, MD

On Dec 9, 7:40 pm, Bill Brown <brow...[at]longwood.edu> wrote:

- quote -

What about state? Also, do you have a link to the IRS rule that
governs this?

<removeps-groups[at]yahoo.com> wrote
- quote -





Yup. The penalty amount paid to you is taxable to you.




--
Paul A. Thomas, CPA
Athens, Georgia

On Dec 9, 10:34 pm, "removeps-gro...[at]yahoo.com" <removeps-
gro...[at]yahoo.com> wrote:
- quote -

The amount you describe is fully taxable at the federal level.

Are penalties from a lawsuit settlement taxable at federal and state
(California) levels? The lawsuit is about employees being overworked
and not paid overtime. Of the settlement amount, 50% is W2 income,
35% penalty, 15% interest. Want to know because if the penalty is
taxable, then my income would be higher, and to avoid tax penalties
for underpayment of tax I'd either have to make estimated payments or
take advantage of the prior year safe harbor rule (this year's W2 tax
110% of last year's total tax, though 100% for lower incomes).