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Is Your Personal Injury Settlement Taxable?

By Eugene Bruno on August 28, 2024

Personal injury settlements are generally not taxable on the federal level, as per IRC Section 104(a)(2). Still, your overall settlement may include both taxable and non-taxable components. For example, lost wages, punitive damages, previously deducted medical costs, and pre-judgment interest can be taxable. On the other hand, compensation for your pain and suffering or emotional distress generally is not taxable. According to IRS rules, pain and suffering damages are not considered taxable income because they are viewed as making the injured party whole again rather than providing a true financial gain.

Understanding What Damages From a Settlement Are Taxable

Punitive damages are taxable since they are intended to punish the defendant rather than compensate you for a specific harm. If medical costs related to the injury were previously itemized as tax deductions, the corresponding portion of the settlement to cover those costs must be declared taxable income.

In wrongful death cases, the compensation is for a case that could have been a personal injury claim had the victim survived, so the settlements are usually not taxable. Punitive damages awarded in wrongful death claims may be non-taxable if the state law specifies they are the only compensation for such cases.

We Can Get You Help From Knowledgeable Tax Professionals

Remember, it’s important to consult with a tax professional to understand the specific tax implications of your settlement, as individual circumstances can vary. Bruno & Associates are not tax lawyers, but we can refer you to knowledgeable tax experts who can provide guidance based on the details of your case. The goal is to help ensure you comply with tax regulations.

One of our San Diego personal injury attorneys will connect you with the right tax consultant at a credible accounting firm. Contact our law firm at 1-888-BRUNO-88 (1-888-278-6688).

Posted in: Personal Injury