This week many former Verizon Wireless customers received a settlement check (up to $175) in the mail. This is in response to the flat early termination fee (ETF) Verizon charged customers for canceling service before their contract ended (between July 23, 1999 to August 10, 2008). This flat ETF happens to be in violation of consumer protection laws. As you might expect, this violation is not specific to just Verizon, many companies in the industry (AT&T, T-Mobile, Sprint) were doing much of the same. If you are a recipient of this settlement or a settlement from another wireless service provider (i.e. AT&T, T-Mobile etc.), you may want to learn more about why you received the amount you did and if that amount is taxable.
Why is My Settlement Check Low?
Many customers may have received a check of only $65 and not the full $175 because there simply wasn’t enough money in the settlement fund to go around and pay all the members of the class in full. In fact, the large number of valid claims, attorney and administrative fees were much higher than initially anticipated. Go figure.
When Could I Have Filed the Claim?
Customers had until October 14, 2008 to file a claim. This means the settlement checks were sent to members of the class action suit more than 2 years after the initial claims were filed & several years past when the violation occurred.
Not Taxable Income
The settlement should not be taxable because the settlement amount is equal or lower than the original cost and you could also argue that the injury occurred because of a wrongful act.
Can Verizon Charge ETF fees in the future?
Not for now. The settlement provides that Verizon Wireless has been ordered by the Court not to impose flat ETFs in its contracts with new subscribers for a minimum of 24 months.
More Tax Questions?
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