Is my personal injury settlement taxable?

Most personal injury cases are settled before or during trial. Only a small number go in front of a judge or jury to reach a verdict. Once you agree on a settlement and sign some papers, the case is over. You then receive your settlement, less the attorney’s fee. After receiving the check, you may wonder whether or not you have to pay taxes on the settlement.

In most cases, the proceeds you receive from your settlement are not taxable under state or federal law. This general rule applies whether or not you settled your case before or during trial, or if you went to trial and received a verdict. Typically, settlements compensate the victim for lost wages, medical expenses, pain and suffering, and attorney’s fees, and those settlements are not taxable.

However, there are a few exceptions to the general rule. If you receive punitive damages, which are designed to punish the defendant, those are taxable. Also, if a breach of contract caused your injury, and that breach of contract is the basis of your lawsuit, you will be taxes on any damages related to a breach of contract. Also, if you receive interest as part of your settlement, that interest is taxable. For example, if there was a lengthy delay between when you filed your lawsuit and when you received payment, you may receive interest on that delayed payment, which is taxable. Finally, if your settlement was only for emotional injuries and not physical injuries, your settlement of verdict is taxable unless you can prove you suffered some physical injuries.

As a personal injury attorney, I can help clients insure that as much of their settlements are non-taxable as possible. If you have any questions, call me, Conal Doyle, personal injury attorney, at 310-385-0567. Call today to learn more or to schedule a consultation.