Mass. income

July 17, 2010 9:58 AM

My BIL claims that insurance settlements for injury are not taxable income in the Commonwealth of Massachusetts. I can't believe the state doesn't overfish that particular revenue stream. So, is it taxable income or not?
posted by pentagoet to Law & Government (5 answers total)

Best answer: Excerpt from Massachusetts tax page -- Settlement amounts for compensatory damages that are excluded from gross income are: personal injury or sickness (whether received in a lump sum or installments); physical injury or illness; alienation of affection; surrender of custody of a minor child.
posted by ClaudiaCenter at 10:04 AM on July 17, 2010

I will google this for you:

Compensation for lost wages is taxable. Compensation for injury is not.
posted by ROU_Xenophobe at 10:06 AM on July 17, 2010

This is very typical if not universal in the United States. The reason is that settlements for injury are to make you whole, so there is no net gain to you from it. But compensation for lost wages is taxable, since you would always pay taxes on wages whether you received then or now.

For this same reason, if you were to sue and receive punitive damages, those would be taxable, because they are gains to you beyond the loss you suffered.
posted by gabrielsamoza at 11:01 AM on July 17, 2010 [1 favorite]

What gabriel said is a succinct summary of the way that the Internal Revenue Code treats these items for purposes of the Federal income tax. I would only add that most states tend to follow the Federal definitions of income rather than trying to devise their own. They don't have to, but most if not all of them do.
posted by megatherium at 1:24 PM on July 17, 2010

Response by poster: Thanks, everyone! I couldn't seem to find the info on the state tax site.
I'm still slightly agog that it ISN'T taxed!
posted by pentagoet at 4:09 PM on July 17, 2010