Around 31 million people are injured enough to require medical treatment
across the United States each year. However, only about 409,000 cases
are personal injury claims are made each year. Many of these personal
injury cases are settled before they ever go to court—out of the
16,000, only maybe 4% reach trial. So, if your personal injury claim is
settled, what happens after? Are you paid the exact amount or is it taxed
as income first?
If you win compensation for a physical injury, most of the time it is not
taxable under federal or state law. It doesn’t matter if the case
was settled before it ever went to court. The federal government and the
state can’t tax you on the settlement or verdict proceeds received
as a result of personal physical injuries or sickness from a person’s
gross income. These personal injury damages are meant to compensate people
for things like lost wages, emotional distress, medical bills, loss of
consortium, pain and suffering, and attorney’s fees.
However, you can be taxed if you suffered physical injury or sickness relating
to a breach of contract. If the breach of contract caused your injury
and is the basis of your lawsuit, then the settlement can be taxed. Additionally,
punitive damages can always be taxable. If you have a punitive damages
claim, your attorney can ask the judge or jury to separate its verdict
into compensatory damages and punitive damages. This separation allows
you to prove to the IRS that part of the total sum won was for compensatory
damages, which are not taxable.
Another taxable portion of the verdict is interest on the judgment. Most
states have court rules that add interest to the verdict for the period
of time that the case has been pending. Many cases can take months, for
example, and the interest is meant to compensate you for lost time. However,
this interest is taxable by the IRS. Emotional injuries are also not protected
from taxation. Only physical injuries are taxable unless you can prove
even the slightest amount of physical damage was also caused by the accident.
If you need help determining whether or not your settlement will be taxed
by the IRS, or you would like to begin a claim, contact our experienced
personal injury attorney. He can help you through the claim-filing process or represent you in
negotiation or in a trial.
Michael J. Doyle is an experienced lawyer who helps people with cases involving
car accidents, slip and falls, environmental cases,
medical malpractice, workplace injuries, and more. Our attorney will treat you with courtesy
as respect as he works to get you fair compensation for your injuries.
Contact us at (505) 219-2176 or fill out our online form to
schedule a case consultation with us today.