Obviously, there is more to the story, and you need to consult an expert. In general, injury compensation is exempt, other damages are not. But why would you settle for less than your legal fees?
The someone you spoke with is right on the money, though the tax rate may be a little exaggerated. Your income is taxed as ordinary income at whatever your marginal tax bracket happens to be, plus you are subject to 15.3% social security and medicare taxes (the same payroll tax a W-2 employee has withheld). Add to this the state income tax on your profits.
Not to late to file amended tax returns for the years you have been doing it wrong.
[ Edited by NewKidinTown2 on Date 02/16/2005 ]
Obviously, there is more to the story, and you need to consult an expert. In general, injury compensation is exempt, other damages are not. But why would you settle for less than your legal fees?
i have a client that won 85,000 back pay, but spent triple that in legal fees, so that is why i am asking if any is taxable.
The someone you spoke with is right on the money, though the tax rate may be a little exaggerated. Your income is taxed as ordinary income at whatever your marginal tax bracket happens to be, plus you are subject to 15.3% social security and medicare taxes (the same payroll tax a W-2 employee has withheld). Add to this the state income tax on your profits.
Not to late to file amended tax returns for the years you have been doing it wrong.
[ Edited by NewKidinTown2 on Date 02/16/2005 ]