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Are Personal Injury Lawsuits Taxable?

If you have been hurt by someone else’s carelessness, and your lawyer negotiates a settlement, will you have to pay income taxes on the amount received? The answer—according to the IRS, is, for the most part – no.

As a general rule, if your settlement is for injuries and pain and suffering, you will not be required to pay back any taxes.

Compensation for Medical Expenses for Personal Injury – Sickness

Any amount intended to compensate you for physical injury or illness will not be taxable, provided you did not take an itemized deduction related to the injury or illness in any year before you received the settlement. If, however, you had a tax benefit in prior years (i.e., took a medical deduction related to the injury), you must report the settlement on a pro rata basis to the extent that you deducted medical expenses in earlier years.

Emotional Distresses the Result of an Injury or Illness

If you suffer emotional distress as part or as a consequence of a physical injury or illness, it will not be taxable, unless you had some prior tax benefit tied to the emotional distress (i.e., took a medical deduction in prior years for treatment for the distress). If, however, the payment is not tied to a personal injury or illness, it will always be taxable as income.

To fully determine whether your recovery is taxable you should always speak with an accountant. Taxability of recovery is different if you have an employment-related lawsuit, a breach of contract action or loss of property.

Contact Fritz & Bianculli

At the law firm of Fritz & Bianculli, we have more than 30 years of combined experience successfully protecting the rights of personal injury victims in the greater Philadelphia area. We have recovered nearly $200 million in settlements and verdicts in cases that other law firms initially turned down.
To set up a free initial consultation, call our office at 215-458-2222 or send us an e-mail. Evening and weekend meetings can be arranged, if necessary. We will come to your home or the hospital for an appointment.