@sundollar2 wrote:
When I receive settlement, it must be income tax deductible for medicinal lines what I already paid?
A settlement for illness or injury is not directly taxable, but you may not claim a tax deduction for medical expenses if they were paid with non-taxed money. If you took a tax deduction and are reimbursed later tax-free, you have to repay the deduction.
For example, you were injured in 2019 and paid $50,000 of medical expenses. You claimed this as an itemized deduction on your 2019 schedule A. Because of the 7.5% income limit, your actual deduction was $20,000. In 2020, you received a settlement for your injuries in the amount of $45,000. It's not taxable income by itself, but since this is more than the $20,000 medical expenses deduction, you have to pay back that deduction. You list it as a "taxable recovery" (reimbursement of a previous tax deduction) in the Other Uncommon Income section of Turbotax.
On the other hand, suppose your medical expenses were only $5000, and you did not itemize your deductions that year. Then, your $5000 settlement is not taxable and you don't have any deduction to repay.
Any part of the settlement that is for punitive damages or interest is always taxable. Damages for pain and suffering are not taxable if the pain and suffering was due to a physical illness or injury, but pain and suffering settlements are taxable if the original injury was not physical.
