Get Form 1120-sf (rev. September 1996). U.s. Income Tax Return For Settlement Funds (under Section 468b)

A qualified settlement fund is a United States person and is subject to tax on its modified gross income for any taxable year at a rate equal to the maximum rate in effect for that taxable year under section 1(e).

If your personal injury settlement includes things other than special damages (out-of-pocket expenses) or general damages (pain and suffering), you might have to pay taxes on that portion. These instances could include a guaranteed severance payment or compensation that could be considered employment income.

Under CRA guidelines, such funds are not considered taxable income, and any amount paid to an individual as the direct result of their pain and suffering resulting from a slip or fall, car accident, or other serious incident is exempt from taxation under the Income Tax Act.

If you receive a settlement in California that is considered taxable income, you will need to report it on your tax return. You will typically receive a Form 1099-MISC, which reports the amount of taxable income you received during the year.

Typically, no. Personal injury settlement funds you receive from the province or territory as a victim of a motor vehicle accident (MVA) or a crime in Canada do not need to be claimed as income, as they are not taxable. This usually applies to slip and falls, car accidents and the like.

About Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B)

Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Domestic corporations must file Form 1120, unless they are required, or elect to file a special return.

A T1 is for your general personal tax return while a T2 is for your corporate tax return. Corporations have a choice in setting their tax year— as long as you file your T2 within six months after the end of your business fiscal year.