Reporting Lawsuit Settlements
Whether you have to pay taxes on a settlements from a investor class-action lawsuit depends on why you got the money.

In the I'm-mad-as-hell-and-I-won't-take-it-anymore category, more and more investors burned by stock market losses are joining class-action lawsuits against the companies.
But what if you get a settlement from such a suit? Is this money taxable?
The answer depends on why you got the money. If, for example, it was because you were overcharged for a stock -- because the price was artificially high because of accounting shenanigans (or worse), for example -- the payment is seen as a refund of part of that price. So, if you still own the securities, you should reduce your basis to reflect the payment, and there's no tax consequence until you later sell the stock.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you've already sold the shares, however, you're supposed to report the payment as a capital gain on Schedule D for the year you get the check.
But, if any part of the settlement was for punitive damages, that money is taxable as ordinary income.
And, if part of the payment represented interest earned on the settlement before it was paid out, that's interest income.
The settlement agent should be able to help you sort out things.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Stocks Edge Higher With Nvidia, Fed in Focus: Stock Market Today
The AI bellwether reports earnings after today's close, while Wall Street is keeping a cautious eye on President Trump's attacks against the Fed.
-
New Trump Tax Bill: Five Changes Homeowners Need to Know Now
Tax Changes Trump’s new tax legislation is reshaping how tax breaks for homeowners work.
-
Stay NJ Could Give You $6,500: The Deadline You Can't Miss
Property Taxes New Jersey has a new property tax relief program for 2025. The application deadline is approaching fast.
-
The Fall Garden Tax? What to Plant and How to Prepare
Tax Tips Fall gardening could increase your taxes this season. Here’s what to know while planting in 2025.
-
Texas Sales Tax-Free Weekend 2025
Tax Holiday Here's what you needed to know about the Texas sales tax holiday.
-
Retirees Should Watch These Four Key Tax Changes in 2025
Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
The Most Tax-Friendly State for Retirement in 2025: Here It Is
Retirement Tax How do you retire ‘tax-free’? This state doesn’t tax retirement income, has a low median property tax bill, and even offers savings on gas. Are you ready for a move?
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
New SALT Deduction Could Put Thousands Back in California Homeowners’ Pockets
Tax Breaks The federal state and local sales tax (SALT) deduction cap is higher this year, and could translate into bigger savings for Golden State homeowners.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's Finances
Tax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.