In 2022, Abby sustains serious injuries from a snow-skiing accident. View the 2022 tax data. View the 2022 itemized deductions. View the 2022 taxable income. In 2023 , Abby receives an additional $7,500 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,100 is to reimburse her legal expenses. Requirement What is the proper tax treatment of this $7,500 settlement? She incurs the following expenses: Abby is single and has no dependents. For the year, her salary is $60,000. She pays $500 in medical and dental insurance premiums, which is withheld from her paycheck on an after-tax basis, $6,550 in mortgage interest on her home, and $1,270 in interest on her car loan. Her health insurance provider reimburses her for $9,000 of the medical expenses. Adjusted gross income (AGI) $60,000 Minus: Deductions from AGl : Itemized deductions Taxable income $46,650(13,350) Filing Status Married individuals filing joint returns and surviving spouses Heads of households Unmarried individuals (other than surviving spouses and heads of households) Married individuals filing separate returns Additional standard deduction for the aged and the blind; Individual who is married and surviving spouses $1,400 Additional standard deduction for the aged and the blind; Individual who is unmarried and not a surviving spouse Taxpayer claimed as dependent on another taxpayer's return: Greater of (1) earned income plus $400 or (2) $1,150 These amounts are $2,800 and $3,500, respectively, for a taxpayer who is both aged and blind. In 2022, Abby sustains serious injuries from a snow-skiing accident. View the 2022 tax data. View the 2022 itemized deductions. View the 2022 taxable income. In 2023 , Abby receives an additional $7,500 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,100 is to reimburse her legal expenses. Requirement What is the proper tax treatment of this $7,500 settlement? She incurs the following expenses: Abby is single and has no dependents. For the year, her salary is $60,000. She pays $500 in medical and dental insurance premiums, which is withheld from her paycheck on an after-tax basis, $6,550 in mortgage interest on her home, and $1,270 in interest on her car loan. Her health insurance provider reimburses her for $9,000 of the medical expenses. Adjusted gross income (AGI) $60,000 Minus: Deductions from AGl : Itemized deductions Taxable income $46,650(13,350) Filing Status Married individuals filing joint returns and surviving spouses Heads of households Unmarried individuals (other than surviving spouses and heads of households) Married individuals filing separate returns Additional standard deduction for the aged and the blind; Individual who is married and surviving spouses $1,400 Additional standard deduction for the aged and the blind; Individual who is unmarried and not a surviving spouse Taxpayer claimed as dependent on another taxpayer's return: Greater of (1) earned income plus $400 or (2) $1,150 These amounts are $2,800 and $3,500, respectively, for a taxpayer who is both aged and blind
