Are personal injury settlements taxable?
Are personal injury settlements taxable? The federal government (IRS) or state cannot tax you on settlement or verdict proceeds in most personal injury claims.
Federal tax law excludes damages received as a result of personal physical injuries or physical sickness from a taxpayer’s gross income. Recent changes in tax law may allow punitive damages and interest to be taxable. The injuries must be physical to qualify for tax-free treatment, as emotional distress is not enough in itself. Insomnia, headaches, and stomachaches have been deemed normal byproducts of emotional distress and could be taxable.
Settlements or awards that provide compensation for physical injuries, emotional distress or lost wages as a result of physical injuries are specifically excluded by the IRS. However, any interest earned from money received in a settlement or award is not tax exempt.
According to the IRS, “If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.”
– source: Publication 4345 at IRS.gov
For over 25 years, our personal injury lawyers have represented injured people of the Tampa Bay area who are seeking compensation for injuries or damages sustained from car accidents, injuries caused by DUI and drunk driving, motorcycle and large truck crashes, boating accidents, as well as slip, trip and fall injuries and more in both State and Federal courts.
Martindale Hubbell peers and judges have rated us as having the highest levels of legal ability and professional ethics.Our personal injury attorneys are supported by a superior staff of legal assistants and expert witnesses. When our law firm represents you, multiple lawyers and legal specialists work together on your case to get you the results you deserve.
There are no costs or fees unless we obtain a settlement for you. – View our recent Personal Injury Settlements and Results
