Question: Tax experts and/or lawyers; How much from a settlement should I set aside for taxes?

[CrimsonNagus]

I was a plaintiff on a lawsuit and accepted a settlement offer that will send me a check within the next few months. It is over $600 so I assume the company paying will submit a 1099-MISC to the IRS. What % of the check should I set aside to cover these taxes? Also, is there any way to go ahead and pay the IRS the taxes on the check when I receive, so that it is kind of like taxes coming out of my paycheck?

 

[Bamaro]

I guess it depends on the settlement. Many are not taxable

 

[DzynKingRTR]

I was a plaintiff on a lawsuit and accepted a settlement offer that will send me a check within the next few months. It is over $600 so I assume the company paying will submit a 1099-MISC to the IRS. What % of the check should I set aside to cover these taxes? Also, is there any way to go ahead and pay the IRS the taxes on the check when I receive, so that it is kind of like taxes coming out of my paycheck?

Most legal settlements are not taxable.

You should invest most of it. Best thing I ever did.

 

[PA Tide Fan]

I think if a settlement is for personal injury or illness it is not taxable but for most any other thing it is. The amount you owe depends on your federal tax bracket and your state income tax rate.

 

[4Q Basket Case]

I think the consensus is to consult a pro who knows your personal tax situation, the terms of the settlement, and the tax implications of those terms.

DzynKing has the best advice -- whatever your net amount (whether that's 100% of the gross, or something less), invest it.

 

[CrimsonNagus]

It is not for personal injury or illness, so it is treated as regular income according to the IRS's website.

I was hopping we had a tax pro around here that could give me a rough % to set aside. I don't use a tax pro, so I don't have on to consult. Investment is a thought but it is not that much money. My wife I out of work and we have enough saved to cover her salary through September, so this could give us a few extra months if she hasn't found a new job.

Thanks for the help and ideas guys.

 

[jthomas666]

It is not for personal injury or illness, so it is treated as regular income according to the IRS's website.

I was hopping we had a tax pro around here that could give me a rough % to set aside. I don't use a tax pro, so I don't have on to consult. Investment is a thought but it is not that much money. My wife I out of work and we have enough saved to cover her salary through September, so this could give us a few extra months if she hasn't found a new job.

Thanks for the help and ideas guys.

If you use software like TurboTax, pull up last year's tax file, then enter the settlement amount as 1099 income. That should get you in teh ballpark for both state and federal taxes.

 

[Bazza]

-snip- I was hoping we had a tax pro around here -snip-

I think the person you want is @TIDE-HSV

Good luck!

 

[PA Tide Fan]

Here's the federal tax brackets for 2025:

Tax Rate	For Single Filers	For Married Individuals Filing Joint Returns	For Heads of Households
10%	$0 to $11,925	$0 to $23,850	$0 to $17,000
12%	$11,925 to $48,475	$23,850 to $96,950	$17,000 to $64,850
22%	$48,475 to $103,350	$96,950 to $206,700	$64,850 to $103,350
24%	$103,350 to $197,300	$206,700 to $394,600	$103,350 to $197,300
32%	$197,300 to $250,525	$394,600 to $501,050	$197,300 to $250,500
35%	$250,525 to $626,350	$501,050 to $751,600	$250,500 to $626,350
37%	$626,350 or more	$751,600 or more	$626,350 or more

The formula should be:

Federal Tax rate + Alabama tax rate (5%?) x $600+ = amount to set aside

I'm not a tax expert but this is how I would calculate it.

 

[BhamToTexas]

About $150 should cover you.