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Is My Personal Injury Settlement Taxable?

If you’ve been injured by the negligent actions of a person, corporation, or government entity, you may be able to pursue damages by filing a personal injury claim. Most personal injury cases settle before or during trial. In fact, the defendant’s insurance company may be willing to offer a settlement just to save money and avoid a drawn-out court case. It’s important to discuss your case with an attorney before accepting any settlement amount. An experienced personal injury lawyer can thoroughly review your case and confirm if the provided settlement covers the extent of your injury related expenses. In a worst-case scenario, the settlement won’t cover your debts and you’ll have waived your right to seek additional compensation in the future.

A settlement can provide significant financial relief if you’ve been struggling under the weight of medical bills and lost wages. But is your personal injury settlement taxable?

Understanding the Components of Your Settlement

According to the IRS, “gross income means all income from whatever source derived” – however, there are certain exceptions. 21 U.S.Code § 104 specifically applies to compensation for injuries and illnesses. For the most part, your personal injury settlement isn’t taxable, but it also depends entirely on what you’re being compensated for.

The following components of your personal injury settlement are not taxable:

  • Medical expenses (unless you claim them as deductions)
  • Lost wages
  • Property damages
  • Pain and suffering
  • Emotional anguish
  • Loss of consortium
  • Attorney fees

The following components of your personal injury settlement may be taxable:

  • Punitive damages
  • Breach of contract damages
  • Interest income

A settlement is only non-taxable if it’s used as restitution for a physical injury. If you have other claims against the defendant that aren’t related to a physical injury, then a portion of your settlement may be taxable. In this scenario, you can work with your attorney to negotiate an agreement that explicitly states which percentage of the settlement is being awarded to the personal injury claim and the non-personal injury claim. The IRS may challenge the non-taxability of a settlement, so it’s important to allocate your compensation so that it’s mostly exempt from taxation.

Learn More by Scheduling a Consultation

Before filing a personal injury claim or accepting an insurance company settlement, contact the Las Vegas attorneys at Bernstein & Poisson. Our trial-tested legal team has the skills, resources, and experience to effectively prove that the defendant’s negligent actions or inactions contributed to your injuries. You can trust our skilled litigators to negotiate with insurance companies on your behalf. With our help, you can secure a beneficial case settlement that reflects your legal objectives and safeguards your quality of life.

We provide 24/7 legal services! Contact Bernstein & Poisson at (702) 602-8869 to schedule a free consultation. If your injuries prevent you from coming to our office for an appointment, we can meet at your home or hospital room.