How Will My Personal Injury Settlement Be Taxed If I Win? - Mazow | McCullough, PC
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How Will My Personal Injury Settlement Be Taxed If I Win?

If you were hurt in an accident or another incident caused by someone else’s negligence, you may be able to file a personal injury claim for compensation. If you’re successful, any costs you incurred as a result of that negligence will be paid back to you.

A common question asked by injury victims is if their winnings can be taxed like their income is, since technically they are receiving the money. Personal injury laws can be complex and difficult to understand – here’s what to know and who to call for qualified legal help after an injury.

Settlements In Civil Suits Aren’t Considered Capital Gains

When you receive a settlement in a civil suit like a personal injury claim, the government doesn’t consider the money you get to be a capital gain. Your winnings aren’t an addition to your income – they’re compensation for losses you incurred.

Since this is a reimbursement of funds you spent on things like medical bills and property damage, the IRS looks at the money you receive differently than it looks at money you’re paid from a job or from investments.

Most Personal Injury Winnings Can’t Be Taxed

Any money you receive that is meant to compensate you for expenses you’ve incurred or pain and suffering you endured isn’t taxable, meaning that the majority of personal injury settlements aren’t subject to taxation.

This includes but isn’t limited to hospital bills, cost of medication, therapy, lost wages, and funeral expenses if someone was killed as a result of negligence. Anything you spent or lost as a direct result of an accident or injury is generally considered restitution and should be paid to you tax free.

Examples Of Tax Free Personal Injury Settlements

There are many cases in which the settlement an injured person receives is entirely tax free. For example, you won’t pay any taxes on money you get for things like:

  • Reimbursement for an emergency room bill you incurred after being bitten by a dog and getting urgent medical care
  • Compensation for the cost of two years of physical therapy after you were injured in a car accident caused by a drunk driver
  • Restitution for wages you lost after being out of work for three months due to an on-the-job accident

Punitive Damages & Legal Fees – The Exceptions

As with most things, there are some exceptions that apply and certain types of personal injury compensation may be taxable if they’re awarded to you.

  • Legal fees. If a judge orders the defendant in your case to pay for your legal fees, you will be responsible for taxes on this amount.
  • Punitive damages. These damages are awarded in cases where the at-fault party’s negligence is egregious. Since these are over and beyond your actual losses, they are considered gains and are taxable.
  • Damages paid solely for pain and suffering. If you are awarded compensation for psychological or emotional distress, and there’s no accompanying physical injury that would have caused it, your settlement will be subject to taxation. Pain and suffering damages aren’t taxed only in cases where they are awarded as part of a total compensation package for a physical injury.
  • Settlements awarded in employment claims. If you sued your employer for discrimination and were awarded compensation, this is taxable since again, there’s no accompanying injury.

Examples Of Taxable Personal Injury Settlements

Here are some examples of personal injury winnings that would be taxable:

  • Punitive damages that are awarded in a medical negligence claim you filed after a doctor administered the wrong treatment
  • Compensation for mental anguish caused by a car accident in which you weren’t physically injured
  • Restitution awarded to you in an employment discrimination or employer misconduct case

Get Support From Our Experienced Salem, MA Personal Injury Lawyers Today

Were you or a family member hurt in an accident or injured another way due to someone else’s negligence? You may be able to recoup the losses you’ve incurred as a result, including your medical costs, lost wages, and more.

The key to getting the maximum compensation you’re entitled to is by working with a qualified personal injury lawyer who can advocate for you. Your attorney can negotiate with insurance companies and other legal professionals to help you pursue the best-case-scenario. Without an attorney, the chances you’ll get a lowball settlement are much higher and you’ll have greater difficulty pressing for fair compensation.

At Mazow | McCullough, PC, we have the skills and experience necessary to provide you with aggressive, comprehensive legal representation when you need it most. Call our Salem, MA office today to schedule your free initial consultation at (978) 744-8000 or toll-free at (855) 693-9084.

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