Are Penalties Taxable Income?

Jim Frame · Post by **Jim Frame** » Fri Dec 03, 2010 10:09 am

My firm has a contract with a California state agency. Due to California's budget mess, some of my invoices weren't paid in a timely manner as defined in the state's Prompt Payment Act. My agency project manager told me yesterday that I'll be getting a check for penalties as prescribed by the Act. Are these penalties taxable income?

P.S. I'm seeking answers from some more pertinent resources, and thought I'd ask here in case any of you has had direct experience with this.

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E_Page · Post by **E_Page** » Fri Dec 03, 2010 2:51 pm

Almost anything considered to be an "accession to wealth" is considered to be income by the FTB. But ask your accountant for a definitive answer.

Jim Frame · Post by **Jim Frame** » Fri Dec 03, 2010 11:18 pm

The consensus is that it's taxable. I was just hoping...

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Stephen Johnson · Post by **Stephen Johnson** » Mon Dec 13, 2010 11:38 am

Jim

Nearly 40 years ago, when the IRS paid me some interest, the next year they sent a form listing it as income I needed to declare on my 1040. And they only paid me $6.00.