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Is a Settlement for Personal Injury Taxable

Is a settlement for personal injury taxable? This is an important question if you have received a settlement for a personal injury, or you are trying to get or expecting to get a settlement for a personal injury.

You were the innocent victim of an incident or accident in which you suffered injuries. The incident or accident happened as the result of the negligence of another party. When you get the settlement you deserve for your injuries, will it be taxable?

Accepted an offer

It may be that the insurance company of that party has made you a settlement offer. You may have accepted that offer and are now wondering whether the settlement you accepted is taxable.

It may be that with the help and representation of a personal injury attorney, you have had to file a personal injury lawsuit in order to receive a fair and just settlement for your injuries. As it happens with the majority of personal injury cases, you have accepted a settlement before or during trial. Or, your case may have went to a verdict, and you were awarded a settlement by the court.

Again, what you want to know is, “Is that settlement taxable?” Is it taxable under either federal or state law?

Not taxable

The good news is that the settlement you are awarded in the majority of personal injury cases is not taxable under state or federal law. In fact, federal law excludes from your gross income, any compensation that you get from physical injuries.

This is true regardless of whether you accepted a settlement without having to file a personal injury lawsuit or before a lawsuit went to court. It is also true if you accepted a settlement during trial or from a verdict by the court.

Compensatory damages

What this means is that things which are regarded as compensatory damages are not taxable as long as they are the result of your injuries from the incident or accident. Neither federal nor state government is allowed to tax you on these damages.

Compensatory damages are damages which are meant to compensate you for several different things. These include things such as:

Medical bills
Lost wages
Pain and suffering
Loss of consortium
Emotional distress
Attorney fees.

There are things which are taxable in a personal injury settlement. For example, if you receive punitive damages, they are taxable. Punitive damages are monetary compensation that you get which are above what is necessary to compensate you for your injuries and are intended to punish the party responsible for your injuries.

Another example of damages that are taxable in a personal injury case are those that are related to a breach of contract. If a breach of contract is what brings about your injuries and is the foundation for your personal injury claim, damages you receive are taxable.

If you have questions as to whether any part of a settlement is taxable that you have received or are about to receive, the right thing to do is to talk to a personal injury attorney. A personal injury attorney will help you to get the best possible settlement for your injuries.

Article written by James Shugart

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