Can a Personal Injury Settlement Be Taxed?

Can a Personal Injury Settlement Be Taxed?

If you’ve been injured due to someone else’s negligence, you’re likely eligible for compensation through a civil lawsuit, and you could receive a settlement offer at any point in the litigation with the help of a skilled personal injury attorney. Once that settles, and the award is in your hands, you may wonder if the funds are subject to taxation. Usually, personal injury settlements are not taxed, though there are some exceptions. Here’s what you need to know.

What is NOT Taxed in Your Personal Injury Settlement

In short, compensation for a physical injury is not taxable; the proceeds one would receive from a personal injury settlement are not subject to state or federal taxation. Under federal tax law, the taxpayer’s gross income excludes compensatory damages from personal physical injury. Damages under this category also include compensation for lost wages, medical bills, loss of consortium, emotional distress, pain and suffering, and lawyer fees as long as they relate to a personal injury claim.

What IS Taxed in Your Personal Injury Settlement

Although most of your personal injury settlement is not subject to taxation under federal tax law, the rule has some exceptions. For example, punitive damages are taxable. Punitive damages’ purpose is to punish the defendant or deter them from engaging in the negligent behavior that resulted in the injury and is not included in non-taxable compensatory damages.

In addition, interest accrued on a judgment is taxable. This means that from the time your lawsuit is filed to the time you receive payment, the interest accumulated in that timespan is taxed. Finally, personal injury claims for exclusively emotional injury are taxable. In other words, if your claim is only based on emotional distress and does not include any physical injury or illness, your settlement will be taxed.

Skilled Injury Lawyers Who Care About Your Settlement

At The Goss Law Firm, we know how much the right settlement could make a difference for an injured individual and their family. If you’ve been injured due to someone else’s negligence, don’t let the injury claims process add insult to injury. Instead, trust our compassionate personal injury attorneys with your case. We will harness our extensive experience and immense knowledge of personal injury law to secure maximum compensation for your experience.

Contact us today by submitting the form below or calling our office at 816-888-5000 for a free legal consultation.