I love finding extra cash to supplement my cash flow. Whether it’s making money just for searching the internet through Swagbucks (as in actual payments to my PayPal account, not just gift cards), or mystery shopping our oil changes for free car maintenance plus a small commission, I’m game.
One of the things that I’ve been pleasantly surprised with are class action settlements. It’s not like this is a consistent way to make extra cash, but when the check in the mail does come in, it’s a lot of fun to receive.
My Experience with Past Payouts
For whatever reason, 2011 was a particularly lucrative year for me with class action settlements.
As each of the postcards/notices came in the mail, I filled them out without the slightest hope of reaping anything from my efforts. Boy was I surprised! Here’s what I received for less than a half an hour of my time:
- $103.82 from H&R Block Inc.: I opened up an Express IRA with the local H&R Block tax people in my early 20s before I understood much about taxes (or retirement, for that matter). The rep told me that I could get back about $825 by putting $2,500 into this account. Score! Because of this class action settlement — which alleged that H&R Block promoted and sold Express IRAs to its tax preparation customers as a good way to save money and earn interest even though the fees charged meant customers often lost money on their investments — meant that I made back almost what I paid to have my taxes done that year.
- $10 from LifeLock: There was a class action lawsuit settled between LifeLock, the FTC, and 34 states, and I was one of the millions of consumers who received a refund from it. The allegation was that the company mis-advertised their practices, with commercials stating they offered complete identity protection, but in reality, they only offered certain forms of it.
Website Resource to Find Current Class Action Lawsuits
The only way I’ve ever known about a class action settlement that I was eligible to submit a claim for was through the mail. Some lawyer or company sent me a notice — sometimes just on a postcard — with legally-mandated information about how I can apply.
It turns out, you can be proactive about class action lawsuits as well. Check out the website ClassActionRebates.com where you can search for products you purchased with open settlements, as well as submit the claim.
Will You Owe Taxes on this Money?
Funds from class action settlements and lawsuits generally fall under the category of punitive damages in the eyes of the IRS (i.e., they’re taxable). However, there are exceptions. For example, settlements to shareholders are generally not taxable because they usually represent a return of your after-tax capital lost due to share mismanagement. A settlement that involves premiums paid being returned is not taxable. This is considered a reimbursement or restitution.
Be aware that most class action settlement money is taxable, and you should receive a 1099-MISC or a 1099-INT in order to claim the money on your tax return.
Will you get a payout from every class action claim you fill out? It’s not likely. I have filled out more forms than two, and only received two so far. Not to mention, some settlements are going to be quite small. But I hope I’ve shown you that the next time one of those postcards comes in the mail, it could be worth the ten minutes it will take you to fill it out and send it back in.