When an individual is injured at the hands of someone else or by a company, they may choose to file a personal injury lawsuit. For the record, this is best done with the assistance of an experienced Los Angeles personal injury lawyer. That way, the victim stands the best chance of receiving just compensation. Injured parties deserve to be compensated for medical bills, lost wages, pain and suffering, and possibly more. Sometimes, extremely large amounts of money can be involved.
If you are considering filing a personal injury lawsuit, you may be wondering: Is a personal injury settlement taxable? The fast and easy answer to that is no. But there can be more to it.
The following will explore whether or not personal injury settlements are taxable and more.
Taxability of Personal Injury Settlement Cases
When referring to the taxability of personal injury settlement cases, you’ll likely want to look at it on two levels: federal and state. The federal government will not ordinarily tax personal injury lawsuit settlements, and more times than not, neither does the state.
- State: When you earn money, some states, but not all, charge income taxes. These are separate from IRS federal taxes. Tax rules vary by state, but typically, they do not tax personal injury settlements. For the losses you suffered, you are receiving this specific type of compensation. It is not a windfall nor is it income. For the harm inflicted upon you and the suffering you endured, it is meant as a type of just payment.
- Federal: None of the funds you receive as just compensation for personal injury will be taxed by the federal government. This is true for non-economic damages (including emotional stress, and pain and suffering) and for actual economic damages.
In the case of emotional distress/pain and suffering, however, only if there is a physical injury will the compensation not be federally taxed. Here’s an example: Let’s say you develop PTSD because a dog lunged at you. There was no harm physically (no dog bite), but in that case, the emotional distress damages would be taxable.
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Medical Expenses May Be an Exception
While, on the surface, the news seems good because personal injury compensation isn’t taxed, there could be an exception to this rule once you dig a little deeper. On your state and/or federal tax return, some of the income from your settlement may have to be declared in certain situations. For example, if in the years leading up to your settlement, an itemized medical bill deduction was taken (that was injury related), this could be the case.
Sounds complicated. That’s because it is. It’s best to have a personal injury attorney assist you not only in pursuing compensation but to have them offer assistance with all the ins and outs and ups and downs of anything and everything relating to your case, including taxes.
How Can The Ryan Law Group Help You with Your Personal Injury Lawsuit?
Regardless of whether or not you have to pay taxes on settlements for personal injury lawsuits, you are entitled to compensation if you have been injured at the hands of another. To get the kind of compensation you deserve, you need a personal injury attorney who is experienced, knowledgeable, and trustworthy. If you believe you have a personal injury case, contact us at The Ryan Law Group as soon as possible.
Call or text 310-321-4800 or complete a Free Case Evaluation form
