I am a plaintiff in a lawsuit currently. I am trying to comprehend what would look like for me if I were to settle or win a payout. If we win or have a settlement, lawyers would take their lawyers fees and then it’s a 60/40 split after that. I make about $75k yearly.
Please help me understand what I would owe in taxes. The math I’ve been attempting issss scary!!! I’m afraid I will owe more money than I get?!
Please help me understand taxes on law suit settlements
byu/sinfulforearm intax
Posted by sinfulforearm
2 Comments
If it’s not a cause of physical injury or sickness than yes you will be taxed.
Currently, you make $75k per year. Assuming you have no special deductions or credits, and that you file single (using rough numbers for simplicity):
* The first ~$16k is covered by the standard deduction and taxed at 0%
* The next ~$12k is taxed at 10% – $1200 in taxes
* The next $38k is taxed at 12% – ~$4600
* The remaining ~$9k is taxed at 22% – ~$2000
* The 22% bracket *can* hold about $55k, but you’re only using $9k of it.
* Total tax: Roughly $7800.
If you were to receive a $100k settlement, including attorneys fees, that would go on top of what I said above.
* You have about $46k left in the 22% bracket – ~$10,000
* The remaining $60k is in the 24% bracket – ~$13,000
* The 24% bracket *can* hold about $96k, but you’re only using $60k of it.
* That’s an additional $23,000 in taxes, for a total of ~$30,800.
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The 2025 tax brackets, if you’re single, are:
* Standard deduction (0%): The first $15,750 you have for 2025
* 10%: The next $12,400 (total taxable income of up to $12,400)
* 12%: The next $38,000 (taxable income of $50,400)
* 22%: The next $55,300 (taxable income of $105,700)
* 24%: The next $96,075 (taxable income of $201,775)
* 32%: The next $54,450 (taxable income of $256,225)
* 35%: The next $384,375 (taxable income of $640,600)
* 37%: Anything above the 35% bracket
You can use something like [this tool](https://engaging-data.com/tax-brackets/) to visualize it, if you like.
You won’t owe more in taxes than the total settlement award, but it is possible that you owe most of it in taxes after paying the attorneys their due.
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All of the above numbers change if you’re filing with a different filing status, and they change somewhat if you have any credits or deductions.
Note that the entire settlement amount will be taxable income, if there are no mitigating details, including the attorney’s fees and the attorney’s split. If the settlement is related to property that you own, then the settlement may first reduce your basis in the property (which doesn’t matter until you sell the property), and only become taxable if it exceeds your basis in the property; see [here](https://www.reddit.com/r/tax/comments/1okbnao/structuring_a_settlement_do_i_need_an_attorney_an/nmb5r52/) for an example of that.