Is an insurance settlement considered taxable income?

Wife was in an automobile accident. Our profession negotiated the small allotment with the word company. IRS claims we owe taxation upon the allotment because the profession reported the allotment volume as nonemplyoyee remuneration paid to us. we thought word settlements were nontaxabel income. Need help or the proper publication in the taxation formula to bring when we respond to the IRS. Thanks

Typically, an collision allotment resolves dual sorts of claims: 1) repairs to skill and 2) personal injury. If any apportionment of your allotment paid for repairs to your car or reimbursed an automobile word deductible, it is not deliberate income. It’s the "return of capital" which restores we to your in front of prior to the accident.

The personal repairs apportionment of your allotment is expected not income as well. In general, repairs awards are deliberate income by the IRS. However, Section 104(a)(2) of the federal taxation formula privately excludes indemnification from personal injuries from taxable income. The only part which would be taxable any apportionment of your personal repairs allotment which relates to punitive damages. Since your allotment is small, I’m guessing which isn’t an emanate for you.

If your profession reported the volume to the IRS as remuneration to you, afterwards he/she probably deducted the same volume upon his/her own taxes as remuneration expense. Consider either we wish to file the censure with your state club association. At the really least, your profession should repair his/her own inapplicable designation for we at no additional cost.