How do I report income from lawsuits?

The following answer was provided by Wesley Rickard, CPA, Quin, Rickard, Lipshires, & Grupp LLP, Norwood.

Q: My mother is 84 years old living on social security income. From what I have read social security is exempt from tax income. However this year she has received approximately $30,000 in money from lawsuits filed on behalf of my father's death. I know she has to pay taxes on this but should she file a 1040 or does this fall under estate tax? Marian, Chelmsford

A: Social security is generally non-taxable depending on ones total income not exceeding certain limits which if your mother has no other sources of income would not apply. The reason for the lawsuit will determine if the settlement is taxable or not . If the cause was personal ,ie for medical malpractice, then the proceeds may not be taxable. If the cause was employment related the proceeds may be taxable. Once that is determined one can then decide if it will be reported as income to the estate or via the fiduciary tax reporting rules may end up being taxable to your mother. You should discuss the facts with an advisor.