Question
In: Accounting
Billy fell off a bar stool and hurt his back. As a result, he was unable...
Billy fell off a bar stool and hurt his back. As a result, he was unable to work for three months. He sued the bar owner and collected $100,000 for the physical injury and $50,000 for the loss of income. Billy also collected $15,000 from an income replacement insurance policy he purchased. Amber was away from work for three months following heart bypass surgery. Amber collected $30,000 under an income replacement insurance policy purchased by her employer. Are the amounts received by Billy and Amber treated the same under the tax law? Explain.
Solutions
Expert Solution
No. They are treated differently.
Billy would receive his $165k nontaxable. Due to one being a settlement (personal injury), one is loss of income (compensatory damages) and the last is an insurance policy that he had taken out and has been paying for.
Amber will be taxed upon her $30k due since it was the employer that took the policy out
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