Do I Have to Pay Taxes on a Personal Injury Settlement

In general, you do not have to bear the burden of paying taxes on your personal injury settlement. We will add specific language that will protect your settlement from any issues with the Internal Revenue Service.

AUTOMOBILE REPAIR EXPENSES

Settlement money received to repair or replace your automobile is not taxable. You can use funds from an auto collision settlement to repair your vehicle, buy a new one, or deposit it in your savings account. The money is not subject to taxation because it is meant to replace the lost value of an asset and not to make profit. In addition, any settlement funds meant to replace or fix property that was damaged during the collision are not taxable.

MEDICAL EXPENSES

Compensation provided for medical expenses and injuries are identified as compensatory and general damages. These legal damages are not subject to taxation.  In addition, settlement funds will not be taxed if they are related to future medical expenses or a particular medical bill. Any portion of the settlement that pays for past, present and future pain and suffering is excluded from taxation because the pain and suffering resulted from the  injuries sustained in the auto collision.

MENTAL ANGUISH AND EMOTIONAL DISTRESS

While settlement for pain and suffering caused by a collision is not taxable, settlement payments for mental anguish and emotional distress may be taxable. The IRS considers settlements for mental anguish and emotional distress as potentially taxable because these legal damages are not associated with physical injuries. Any settlement funds received because of anxiety, emotional distress, and post-traumatic stress may be taxable. However, if you use part of your settlement to pay a mental health provider to help you deal with mental anguish and emotional distress as a result of the collision, compensation related to the treatment cost is not taxable. 

SETTLING A PERSONAL INJURY CASE

Settling a personal injury case generally involves signing a Settlement Agreement and Release of Liability against the other party in exchange for the settlement funds.  Our trial lawyer can represent you in settlement negotiations before, during, and even after trial.   In most settlements, the parties will have to compromise to reach an agreement. Both parties often work towards negotiating a settlement to eliminate the uncertainty of a jury decision and to reduce the litigation expenses associated with these cases.

PERSONAL INJURY SETTLEMENTS

Personal injuries like sprained ankles and knees can be caused by slip-and-falls, auto collisions and medical malpractice.  Settling your case for the amount initially demanded by your personal injury lawyer may not be possible. However, your trial attorney may provide you with several options for your settlement.

EVALUATING A POSSIBLE SETTLEMENT TO YOUR CLAIM

Personal injury cases are evaluated based on the legal damages that include past, present and future medical expenses; past, present and future pain and suffering; hedonic damages that include loss of enjoyment of life; loss of past wages and future earnings capacity; mental and emotional distress and other legal damages depending on the facts of your case.  The evaluation of your case will be based on the facts, evidence and circumstances. We evaluate the potential value of your case based on the merits. No two cases are similar and it is difficult to compare your case with another case that may have reached a settlement that is lower or higher than the settlement value of your case. Of course, if the case proceeds to a jury trial, the value of the case will be in the hands of the twelve person jury.