Do I Need To Pay Taxes On My Personal Injury Settlement?


Personal Injury Settlement | Peter N. Davis & Associates
Getting involved in a personal injury case is likely the last place most of us want to be, but sometimes accidents are unavoidable. Ideally, by working with a trained personal injury lawyer, you will receive the settlement offer that you deserve. However, the question remains: even after receiving a settlement, do you have to pay taxes on the amount awarded? The answer will vary depending on the case itself and other extant factors.

The legal team at Peter Davis & Associates has been responsible for big settlements for accident victims and we would like to make our knowledge and expertise work for you. It starts by learning once and for all if taxes apply to your potential personal injury settlement.

What is the General Rule?

Generally speaking, you will not be expected to pay taxes on any settlement amount awarded due to a personal injury claim. This covers both federal and state law. It does not matter if the case was settled only after filing a lawsuit in court. It also does not matter if the case went to trial and was decided by a jury verdict.

It should be noted, however, that this federal and state exemption typically only applies to personal injury cases involving actual physical injury. The idea here is that a physical injury will lead to high medical bills, lost wages and other financial burdens for which a settlement is meant to cover. As a result, it would be rather cruel to tax what is supposed to be helping an accident victim.

Physical injury can also include sickness. Specifically, if the sickness was related to a personal injury claim, the settlement cannot be taxed.

Exceptions to the Rule

As with most issues in law, there are some exceptions.

Breach of Contract

If the personal injury claim is related to a breach of contract, your damages can be taxed, even if you sustained physical injury.

Punitive Damages

Punitive damages are always taxed and, as a result, a lawyer might ask the judge to separate settlement into compensatory damages (which are not taxable) and punitive damages.

Interest on the Judgment

Many states will add interest to the settlement amount based on the length of time the case was pending. Considering that some cases can last months, if not years, this interest can grow quite high and it is taxable.

Emotional Damages

If your personal injury claim is based on emotional and not physical injury, you can expect the settlement to be taxed.

Learn More from a Professional Personal Injury Lawyer

There are many legal loopholes and obstacles involved in even the simplest personal injury cases. It is therefore of vital importance that you have a skilled personal injury lawyer on your side to ensure a fair settlement.

The lawyers at Peter Davis & Associates are more than capable of helping you. If you have a potential personal injury case on your hands, contact one of our representatives. Only by hearing from you can we start the process, so reach out today.

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Paterson, NJ 07505
Patterson Falls