Are Personal Injury Settlements Taxable?

In most cases, personal injury claims are settled either before or during the course of the trial. Only a very small percentage would go to trial court. Once you accept the offer proposed by the defense attorney, the case stands to be settled. Ideally, you should now be able to secure your payment and resume your life. However, there could be cases where Uncle Sam might eye a portion of the settlement amount, state some zealous and attention to detail tax attorneys. So, are personal injury settlements taxable?Personal Injury

Most Settlements are not Taxable

As a general rule, your personal injury claims do not stand to be taxable under state or federal law. Whether you have settled your case before or after a lawsuit has been filed, this does not have any bearing on the tax implications. You might have gone to trial and won a verdict but that does not matter. Neither the IRS nor the state can impose any taxes on your settlement amount for a majority of personal injury claims.  For one, the IRS laws would exclude the damages received as a result of physical injuries or sickness from your taxpayer gross income.

Exceptions are There

Tax lawyers further clarify that typical damages received for compensating against lost wages, emotional distress, medical bills, loss of consortium, pain and suffering, and also attorney fees would not be taxed as long as they are coming from a physical sickness or a personal injury. Here, physical sickness represents a claim made for an illness. For instance, if you were exposed to a disease causing germ on account of negligence that made you sick, any damages recovered as a result of it would be taxed.

Your tax lawyer will also tell you that in case you suffer illness or injury you can however be taxed on the damages concerning the breach of contract in case the injury has been caused by the breach and the breach is the primary basis of your personal lawsuit. Punitive damages too, are always taxable.

Americans have never been taxed this much in their history and is another reason why so many jobs are overseas that could be here.