Is a Personal Injury Settlement Taxable?
When it comes to settling a personal injury case, one of the most common questions that arises is whether the settlement proceeds are taxable. Generally speaking, the answer to that question is no. However, there are some caveats and exceptions that you should be aware of.
If you sustain injuries in a serious accident that was not your fault, the experienced Sumner County personal injury lawyers at Bednarz Law can help you pursue a monetary settlement to compensate you for your damages and injuries.
What the IRS Says about Personal Injury Settlements
The Internal Revenue Service – otherwise known as the IRS – has stated that a monetary settlement for personal injuries or sickness is not taxable at all, assuming you did not take an itemized deduction for the related medical expenses in previous tax years.
If you took an itemized deduction for those related medical bills and expenses in prior tax years, however, you have to claim the portion of your settlement which provided you with a tax benefit.
Mental Anguish and Emotional Distress Damages
In some instances, as part of a personal injury settlement, accident victims may recover monetary compensation (i.e., damages) for mental anguish and emotional distress stemming from a personal injury. If that is the case, the proceeds of that settlement are not taxable.
If the mental anguish or emotional distress, however, does not arise out of the sickness or personal injury sustained in the accident, then you generally have to include those settlement proceeds in your income, subject to any available deductions.
Punitive Damages
Punitive damages are damages awarded to the injured person to punish the at-fault party – usually for behaving in an egregious or extremely careless manner. For example, if a driver was well above the legal alcohol limit and drove 60 miles per hour through rush hour traffic, causing a serious motor vehicle collision with injuries, the jury might award the accident victim punitive damages.
If you receive an actual court award for punitive damages, those proceeds are typically taxable, and you must report these proceeds on your tax return under “Other Income.” A punitive damage award can be taxed even if the award resulted from sickness or personal injury.
Lost Wages
In some instances, a personal injury award is itemized to include monetary recovery for medical bills, pain and suffering, and lost wages. It the recovery is itemized, the lost wage portion of the award may be subject to taxation, and you must report it as income on your tax return. Many personal injury lawyers will do their best to eliminate – or at least minimize – any apportioning of this kind.
Contact a Sumner County Personal Injury Attorney Today
If you have suffered injuries and damages in an accident that was not your fault, the experienced personal injury attorneys at Bednarz Law can help guide you through the settlement negotiation and litigation processes.
To schedule a free case evaluation and legal consultation with an experienced Sumner County personal injury attorney, please contact us online.