Will I Lose My Personal Injury Settlement To Taxes?

A Sarasota Accident Attorney Explains Tax Laws And Damages

Pursuing the compensation that an individual deserves after sustaining catastrophic injuries in an auto accident, slip and fall or an act of medical malpractice can be both a rewarding and difficult decision. Some individuals and the families of victims hurt by another person’s negligence may not choose to seek legal actions out of a fear that they will lose a large portion of their compensation to federal income taxes. Our Sarasota injury lawyer wants to set the record straight about how taxes will affect a personal injury settlement.

Is It True that I Will Lose Most of My Compensation to Taxes?

The short and simple answer is no, not in most cases. The exact tax rules the govern injury settlements and verdicts have changed a few times in the past couple of decades. However, since 1996 the general rule from the Internal Revenue Service (IRS) has been that compensation for physical injuries is tax-free.

Most other compensation is tax-free in the event that you suffered a serious physical illness, which may apply to some medical malpractice cases. The law also considers wrongful death a form of physical injury, meaning family members of the deceased will not have to pay taxes on the damages they receive for the loss of their loved one.

In addition to these types of compensation being tax free, personal injury victims generally do not have to pay taxes on medical treatments. The legal definition of “medical treatment” is very broad and can include:

  • Hospital room charges
  • Surgeries
  • MRI and CAT scans
  • Wheelchairs
  • Counselor visits
  • Psychiatry
  • Physical therapy
  • Employment rehabilitation
  • Home modifications for accessibility

Which Types of Compensation Does the IRS Tax?

There are certain damages that the IRS does consider taxable, such as compensation for emotional distress, lost wages and job benefits. However, a seasoned Sarasota injury lawyer will know how to work with the government to ensure that you receive the most amount of compensation available to you under the law for the pain and suffering you and your family have experienced.

The laws that govern injury settlement taxation are also subject to a number of interpretations. Retaining personal, yet aggressive representation will ensure that you are able to protect your gains throughout the long and often complex legal battle. In cases dealing with compensation for personal injury victims, you should consult with an attorney about your specific situation. We note that this page is for informational purposes only and does not constitute legal advice or tax advice.

When You Need to Uphold Your Rights, Legal Assistance is Vital

An experienced Sarasota injury lawyer will work with you and your family to get your deserved compensation if the careless actions or inactions of another caused serious injuries. Contact our office today to speak with an attorney who can explain your legal rights. Although no amount of compensation can undo the consequences of a devastating accident, we believe it can help you start to rebuild your life in the wake of an unimaginable tragedy.