Will I have to pay taxes on my settlement?

personal injury settlement

Will the IRS make me pay taxes on my settlement?

Many of our Memphis and Tennessee injury clients ask – will I have to pay taxes on my settlement for personal injuries?  The general answer is NO.

Here is what the IRS currently says about Settlements and Taxability:

If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.

What if I did take an itemized deduction for related medical bills in prior years?

Will I have to pay taxes on my settlement if I did?  You must include in income the part of the settlement that is for medical expenses you deducted in any prior year to the extent the deduction provided a tax benefit. For detailed information on how to report this, we recommend that you speak with your accountant or tax professional.

What about settlements for Emotional Distress or Mental Anguish?

If you receive a settlement for emotional distress or mental anguish stemming from a personal physical injury or sickness, then the settlement is treated the same as a personal injury, as noted above above. However, if the settlement for emotional distress or anguish does not arise out of a personal injury or sickness, then you must include the proceeds in your income. Here is what the IRS states on this issue:

If the proceeds you receive for emotional distress or mental anguish do not originate from a personal physical injury or physical sickness, you must include them in your income. However, the amount you must include is reduced by: (1) amounts paid for medical expenses attributable to emotional distress or mental anguish not previously deducted and (2) previously deducted medical expenses for such distress and anguish that did not provide a tax benefit. Attach to your return a statement showing the entire settlement amount less related medical costs not previously deducted and medical costs deducted for which there was no tax benefit. The net taxable amount should be reported as “Other Income.”

Punitive Damages are Taxable

If you receive an actual court award of punitive damages, those proceeds are taxable and should be reported as “Other Income.”  This is true even if the award stems from personal injury or sickness.

Recovery of Lost Wages is Taxable

If your personal injury settlement is itemized to include recovery for lost wages, then that portion of the settlement is taxable and should be reported as income.  During the negotiation phase, most attorneys are careful to clarify and/or minimize, if not eliminate, any apportionment of the settlement to wages.  You would likely also receive a Form 1099 for any recovery attributable to lost wages.  [Note: Wages and/or settlements paid in connection with work comp are not taxable.]

Interest on a Settlement is Taxable

What if the other side doesn’t pay my settlement all at once? Will I have to pay taxes on my settlement if they pay me interest? Yes. Interest you are paid on any settlement is taxable as “Interest Income.”

Do I have to tell my CPA or Tax Preparer about my settlement?

We advise that you do, so that he or she can advise you on the most up-to-date reporting requirements applying to your specific settlement.

Injured and seeking legal representation?

Call us at 901-372-5003 or email us here. We handle a wide range of personal injury cases.  Our approach to handling cases is what sets our firm apart. While some injury lawyers and firms take on hundreds of cases, and may seem more interested in quickly settling the case than seeking full and fair compensation for their client, we focus on identifying great clients and great relationships.

Victims need a lawyer with the experience, drive, and knowledge necessary to compete with the insurance companies who are handling your claim. Otherwise, you’ll end up being a victim twice, and you might not even realize it until it’s already too late. Our personal injury practice is led by Harvard-educated attorney Lang Wiseman. We know how to get fair and just results.

Click here to learn more about the work we do.

 

Medical Care After a Car Wreck

car wreck medical care, personal injury lawyer memphis

Been in an Accident? Next Steps for Your Medical Care.

We have clients who have been involved in an accident, whether a car wreck, slip and fall, dog bite, or other injury, and they often ask what they should do about medical care, and whether it will hurt or help their court case. Our answer is always the same:  you and your healthcare providers should make your medical care decisions based purely on what’s best for your health.  No claim or lawsuit should ever affect your medical care decision-making.

Many also have questions about what to do immediately after an accident.  Here are some frequently asked questions and our typical responses. However, remember that each case is unique, and our lawyers can help you navigate your individual circumstances. Call us today at (901) 372-5003.

Should I seek immediate treatment for injuries after a car wreck?

Yes.  It is best to seek prompt medical care so that your injuries can be properly evaluated by trained medical personnel.  According to DMV.org, it’s important to understand that you may have an injury, even if you aren’t totally sure. Many insurance adjusters will hold delays in medical treatment against you, even assuming you were merely trying to do the right thing by taking a conservative, wait-and-see approach.

What if I’m concerned about the cost of medical care?

If you were injured in a car wreck, you may (and should) rely on your health insurance to cover your treatment. If not, but you have automobile insurance, your policy probably contains Medical Payment Coverage up to a certain amount, and so you may be able to recover some of your medical expenses from your own insurance company.  Depending on what happened to you and whether someone else is responsible, you may be also able to recover your medical expenses from someone else’s liability insurance company.

What else should I do after an accident if I think I might have a claim?

If you are able, get the contact information of any eyewitnesses. Get a copy of the Police Report. Take photos of your injuries. If you’ve been in a car accident, take photos of your car and the scene, if possible. If you are involved in a slip and fall or some other type of accident, take photos of the scene of the accident and its condition at the time of your injury. Keep a list of the medical providers you see, and the limitations and pain you suffer. Claims and lawsuits can sometimes take months to resolve, and you will be surprised at how memories fade.  Make a list of any prescription medications or other medicines that you have to take because of the accident, and keep records of the costs. Document any other expenses you incur because of the accident.

What if I have to miss work?

You may be entitled to recover for lost wages. Obtain written documentation from your employer of the days, hours, and wages you missed because of the accident.

Frequently Asked Questions

You can find answers to more Frequently Asked Questions on our website by clicking here.

 

WISEMAN BRAY PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

www.WisemanBray.com