Are Personal Injury Settlements Taxable?

personal injury settlements are taxable

Many people who receive personal injury settlements have significant concerns about their potential tax liability. When you need help with these types of issues, be sure to contact an Austin personal injury attorney.

People who receive settlements after a car accident or other injury deal with these concerns during the year when they do their taxes and try to determine whether the settlement counts as taxable income. Here are the times when bills count as income and when they don’t.

Personal injury settlements when there is no income

When you receive compensation for injuries or illness, this is usually tax-free income. This includes compensation for medical bills, lost wages and other financial losses. Most people do not have to report their settlement to the IRS and have no additional tax liability because of the settlement.

The IRS treats earnings for emotional distress or mental anguish the same as compensation for financial losses, meaning you don’t include the settlement proceeds in your income. However, if you receive a settlement for emotional distress unrelated to the physical injury, you may have a tax liability on a portion of that settlement.

When personal injury settlements are earnings

You may be required to report the proceeds of a settlement that covers certain medical expenses. For example, if you previously received a tax deduction for paying out-of-pocket medical bills related to your injuries, you may not be able to reclaim those payments without tax consequences. In this case, you will have to repay the previously withheld medical bill as taxable income.

As mentioned above, you must include on your tax return any income you receive for mental anguish or mental anguish that is not caused by an injury or illness. The amount you have is usually lower than the amount you received. You may be able to deduct the cost of medical care for grief that you have not previously used as a deduction or received a tax credit.

If you receive a punitive payment as part of a jury award, that portion of your income is taxable and you must report it on your tax return. Punitive damages are rare and do not cover any financial loss. This means that paying taxes on this recovery can leave you far ahead financially before your award.

Schedule a free consultation with an Austin personal injury attorney

When you enter into any arrangement, you want to make sure you comply with all state and federal tax laws. If you need help figuring out what taxes to pay in your personal injury case, contact legal representation. For help navigating this complex area of ​​the law, contact our TK injury lawyers. We can address any questions or concerns you may have about the injury claim process.

Call us at (512) 982-9713 or contact us online for a free consultation so we can discuss how to handle your case.

Trent Kelly

Trent Kelly received his law degree from the University of Arkansas in 2007. He is licensed to practice law in Texas and regularly assists clients with their legal matters. Trent’s practice focuses primarily on personal injury, particularly involving motor vehicles (such as cars, commercial trucks, 18-wheelers, and motorcycles) and wrongful death, but he also handles a variety of business litigation matters. comes out. Click here to review some of the complex cases Trent has handled.

Years of experience: +15 years
Address: Austin, TX

Leave a Comment