Odenton, MD asked in Personal Injury and Employment Law for Maryland

Q: Is a long term disability lump sum settlement taxable as "sick pay wages?"

I received a W2 for an insurance settlement claiming they are wages. This settlement was based on a claim that they denied me proper ability to appeal my denial. It was not for the full amount I should have received if LTD had been approved. It was a lump settlement to avoid going to court. And how do you pay taxes on a check where your lawyer took part of it? My accountant feels my W2 should have been sent as non-taxable sick pay, since it was a settlement.

2 Lawyer Answers
Mark Oakley
Mark Oakley
Answered
  • Rockville, MD
  • Licensed in Maryland

A: If it is paid as compensation for lost income, yes. If a settlement is paid as compensation for general pain and suffering or permanent impairment, then no. If paid to cover both, but is not apportioned between income and pain and suffering, then it is all deemed pain and suffering and not taxable. Most employment disability is for lost income, however, so it would be taxable as income.

Eric Todd Kirk
Eric Todd Kirk pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
Answered
  • Baltimore, MD
  • Licensed in Maryland

A: You are best served seeking the advice of a tax professional.

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