Do you have to pay taxes on a lawsuit you were awarded?
In truth, it really depends on the type of lawsuit and the type of damages awarded to the plaintiff. In most cases, you do not have to pay taxes when awarded a monetary amount after you win a lawsuit, regardless if the amount is part of a lump sum or in various installments. For instance, for cases that involve compensation towards your personal injury, you are rewarded the entire sum of the damages handed down by the ruling of the case. However, when it comes to punitive damages, or damages that aren't rewarded in an effort to compensate you for personal injury, then almost all of it can be taxable. So not only do you have to pay attorney fees, but the IRS will take a chunk, too. You must prove that you were physically harmed in order to receive compensatory damages and be tax-free for your winnings.