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Free settlement money, family members doing it without being eligible

SL6827

DIS Veteran
Joined
Apr 23, 2017
My sister-in-law has been signing up for and receiving checks from settlements (she is really not eligible for) that require no proof, for about a year now and averages around $150 extra a month in free cash. I told her I wouldn't be so sure about doing such as I would think it could catch up to her. Is she crazy for such? Wouldn't she have to file that with her taxes?
 
For the sorts of things she could be signing up for yes, the money is absolutely considered income and is taxable. And there is no way in heck I would risk being brought up on perjury charges by playing such a dangerous game. You can’t take the family on vacation from jail.
Exactly! Would make me super nervous.
 
Wouldn't she have to file that with her taxes?


I think it depends on what the settlement is for and the amount. I have been a part of a few of class action settlements, legitimately. I think I got back around $10 for each one and there was no tax implication. Two others were for price rigging things in that they charged too much and conspired with others to do so. The last one was the Ticketmaster one where the settlement was things like free tickets to certain shows and free UPS type shipping. In the TM one I never did use any of it as it didn't work out for me. In all those cases they contacted me as there was record of my purchases.
 


I think it depends on what the settlement is for and the amount. I have been a part of a few of class action settlements, legitimately. I think I got back around $10 for each one and there was no tax implication. Two others were for price rigging things in that they charged too much and conspired with others to do so. The last one was the Ticketmaster one where the settlement was things like free tickets to certain shows and free UPS type shipping. In the TM one I never did use any of it as it didn't work out for me. In all those cases they contacted me as there was record of my purchases.
This is a good chance to remind people that even if you don’t receive a 1099 for the settlement you might still owe taxes. Equifax has a good 101 on the topic here. Highlight:
“When the lawsuit is related to physical harm you suffered, such as cancer as a result of toxic wastes being deposited in an area (as in Burbank), the judgment is not taxable.
When a lawsuit is related to anything that did not cause physical harm-discrimination of any kind, loss of income, or devaluation of an investment-the lawsuit settlement proceeds are taxable.
Whether the income will be considered ordinary (top tax rates), capital (special investment rates, potentially), lost wages (subject to payroll taxes), or self-employment (subject to self-employment taxes of 15.3 percent plus the top marginal tax rate) all depends on the nature of the lawsuit.”
 
I think it depends on what the settlement is for and the amount. I have been a part of a few of class action settlements, legitimately. I think I got back around $10 for each one and there was no tax implication. Two others were for price rigging things in that they charged too much and conspired with others to do so. The last one was the Ticketmaster one where the settlement was things like free tickets to certain shows and free UPS type shipping. In the TM one I never did use any of it as it didn't work out for me. In all those cases they contacted me as there was record of my purchases.
Right, but you were actually "eligible" for them. She hasn't bought/done none of the ones she signs up for. I mean, I guess every now and then she might actually qualify for one, but those are few and far between. With them requiring no proof, it is like open season for her and free money.
 


Typically one is contacted by the law firm/store/company/courts.
It may catch up to her... likely not though.
 
Right, but you were actually "eligible" for them. She hasn't bought/done none of the ones she signs up for. I mean, I guess every now and then she might actually qualify for one, but those are few and far between. With them requiring no proof, it is like open season for her and free money.

I was referring to the tax implications, not the legality of what she is doing.
 
I’m surprised it is even possible to game that much money. The few class-action suits in which I was involved didn’t result in enough to buy a cup of coffee at Starbucks.
 
I’m surprised it is even possible to game that much money. The few class-action suits in which I was involved didn’t result in enough to buy a cup of coffee at Starbucks.
She may not, but that is what she has told me, so it could or could not be so.
 
When a lawsuit is related to anything that did not cause physical harm-discrimination of any kind, loss of income, or devaluation of an investment-the lawsuit settlement proceeds are taxable.
Oh. So if I ever get my coupons from the tuna sttlement, or my couple of bucks from the milk settlement (neither of which I can find any information about), it's taxable. I did not know this.
 
Oh. So if I ever get my coupons from the tuna sttlement, or my couple of bucks from the milk settlement (neither of which I can find any information about), it's taxable. I did not know this.

I wouldn't worry about it...tax brackets for taxes owed are every $50, so the odds you actually break into the "next" level are so low, it's not worth stressing...
 
I wouldn't worry about it...tax brackets for taxes owed are every $50, so the odds you actually break into the "next" level are so low, it's not worth stressing...
Ya, I would think a few dollars here and there wouldn't matter. But if your raking in say $100 a month, it could.
 
Regardless if she's crazy for doing it or might get caught, the fact that she is doing it in the first place says a lot about her character. Actions matter whether or not people get caught or not.
 
Regardless if she's crazy for doing it or might get caught, the fact that she is doing it in the first place says a lot about her character. Actions matter whether or not people get caught or not.
Ya, I am concerned she might get caught, but there is nothing I can say to change things.
 
There are a lot fo these settlement things that you can find on the internet--you have to affirm that you've bought Starkist tuna (or whatever product), but you aren't required to produce receipts, because the item is inexpensive, the time frame covered is long, and you likely wouldn't have a receipt for Starkist tuna from 2017 lying around. (Just picking on Starkist--obviously, it could be any product).

For larger, more trackable products, you would get a postcard--you bought a GE range in 2013 that's subject to litigation (again, just making this up). You sent in the warranty card, so they have your info.

Generally, these settlements have little value. They know a lot of people won't bother. Typically, you have a few months to submit your name, then the pot is split among respondees. You usually have a choice of $X off a future purchase, or $Y in cash/check. You eventually get a check in the mail for $1.20, or similar piddly amount. I'm still waiting on a tuna one that I submitted over a year ago (I think I asked for the free tuna coupons).

I can't imagine it would be worth the trouble to fake this to the tune of $150/month. That's a lot of lying (could face legal consequences), and a lot of trouble for the tiny checks involved. The real scammers are the lawyers involved with these lawsuits--they're making actual sums of money.
 
I got one of those postcard things last week for Sirus XM. I've never subscribed to them, so I just tossed it.
 

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