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Is A Personal Injury Settlement Taxed?
- July 4, 2016
Personal injury litigation can take months, or years, before it concludes. After you pay the medical liens and legal fees, the plaintiff ends up with a lump sum, or a structured settlement. The next big question you probably have, is “will my settlement be taxed.” The answer is yes, and sometimes – no. It all depends on what the settlement money is for.
What part isn’t taxed
Any settlement which is for compensation for a physical injury, or illness, is not taxed. On-going medical costs, past+future lost wages, and compensation for mental anguish – can be included in the untaxed component of your settlement – so long as it was the result of a physical condition.
What part is taxed?
It’s always good to speak to a personal injury law firm to get the answer, since each case is different. If a settlement is compensation for the effect of a mental condition – not related to a physical injury, then it will be taxed. In large mass tort cases, the time between filing and the final verdict can be years. In cases like this, it’s common for the interest that’s accrued to be awarded to the plaintiff. The base compensation may not be taxed, but the interest on this settlement can be taxed.
If you have received proceeds from a settlement that may qualify to be taxed, then it’s important you realize that the funds will be taxed as capital gains – not income.