Almost All Personal Injury Settlements And Awards Are Not Subject to Income Tax.
Why not? Because most – or all – of it is not really income. All it is is a return of something you lost – the right to live pain free.
The money you receive in settlement is for the violation of that right. It’s not treated the same as money you earned by working.
Your medical bills are also being reimbursed to you. That is also a return of something you lost.
The government could argue that getting back your lost wages as part of a settlement is actually income that you should be taxed on. But under the present law, they don’t make that argument.
So what can you be taxed on? Punitive damages – if they are set forth as part of an award. Also, attorney fee awards can probably be taxed.
But between 95% and 98% of cases settle for a lump sum (that is my estimate of my cases); and the amount attributable to punitive damages and attorney fees isn’t specified in the settlement. In fact, most auto accident lawsuits don’t even involve claims for punitive damages or attorney fees.
So it is rare to have to pay tax on these things.
But you should be aware of the taxability of punitive damages and attorney fees if your case actually goes to trial. Because if you ask a jury for punitive damages, or if you ask a judge for attorney fees, those are separate “items” that wind up getting broken out as part of the award made by the court.
I have been a lawyer over 30 years. You should consult with your own accountant before making any decisions based on the tax implications of a settlement.
I am not an accountant, but to the best of my knowledge none of my clients have ever been taxed on a personal injury settlement.
If you have a personal injury case in Cincinnati, Ohio or if you want to know what your lawsuit is worth, talk with an experienced Cincinnati Injury Lawyer about the case. Call me, William Strubbe, at 513-621-4775.
Because all situations are different, and because there may be other facts pertaining to your case that I don’t know about, you should not rely on this answer for legal advice. I am not your attorney, and no lawyer client relationship has been formed. And past performance cannot be used to predict future results.