Class-action lawsuits involve several stages. After one is filed, it has to be certified by the court, and potential members of the "class" have to be notified. Next, those members need to have the opportunity to opt in (or out). Only then are there settlement negotiations or a trial. This can take months or years — not an immediate payday by any means.
It’s also not necessarily a big payday. With a settlement, Vaaler says, the law firm is paid out of the pool of money first, followed by the lead plaintiff. What’s left over is divided among the claimants, either equally or according to certain criteria. (If person A used a faulty product for longer than person B, person A would get paid more, etc.)
“I wouldn’t expect to get rich on this,” he adds.
Case in point: The average payment in a $15 million settlement from Post Foods cereal a few years ago was just $14.28. A 2015 Red Bull settlement gave class members the choice between $10 cash or $15 worth of Red Bull products.
On one hand, all of these small deposits can add up. On the other, depending on what type of relief I receive, I may owe taxes on it, which makes the financial victory a liiiittle less exciting.
“Unless otherwise excluded under the law, all income is taxable including settlement money from lawsuits — both individual and class-action,” Mark Steber, chief tax information officer for Jackson Hewitt Tax Services, tells me in an email. “But there are a few exceptions to the taxable rule, including certain discrimination claims, amounts paid for physical injury, amounts paid for personal injuries and physical sickness, and certain punitive damages such as a wrongful death claim.”
(FYI, Steber says settlements for wages will likely be reported on a W-2, and others will probably be on a 1099-MISC.)
Don’t get me wrong: Class-action lawsuits and their settlements can still be legit opportunities for people who were injured or wronged. So if I get a notice and I have to decide whether to sign onto a class-action lawsuit, Vaaler suggests I do a bit of research. I should make sure the complaint accurately represents my specific situation, and if I choose to join the class, he says I should stay diligent on any developments.
“If [someone says], ‘Gosh, join a class-action, make some easy money,’ you’ve gotta do your homework,” he adds.
After a hotter-than-expected March inflation report, some signs point to Fed rate cuts starting later this year, which gives you extra time to snag a CD with a juicy APY up to 5.25%. Sweetening the deal is the fact that some CDs don’t even require minimum deposits. Check out our curated list of the best CD accounts and take advantage of JPow’s procrastination.
