Post Trump Tax Reform, How Legal Settlements are Taxed
Robert W. Wood
Robert W. Wood is a tax lawyer with www.WoodLLP.com, and the author of numerous tax books, including Taxation of Damage Awards & Settlement Payments (www.TaxInstitute.com). This discussion is not intended as legal advice.
Lawyers and clients resolve disputes all the time, usually with an exchange of money and a release. One of the first questions plaintiffs ask their attorneys is whether the payments they receive will be taxable. The answer to that question can vary enormously, depending on how you were damaged, how the case was resolved, how the checks and IRS Forms 1099 were issued, and other variables.
Last year, the Business Law News published an article by the author summarizing the tax rules that applied in this common situation.1 Some of those tax rules changed with the major tax bill passed in December 2017,2 however. This article updates that earlier article to reflect the changes, which impact the tax treatment of attorney fees in a variety of cases and add special rules for sexual harassment and abuse cases.