If you’ve been injured and have earned a settlement from it, the last thing you want is a notice from the IRA. After all of that effort, suffering through your injury and fighting with your settlement, they’re the last people you want to be talking to.
So the question is simple. Are personal injury settlements taxable? If you’ve received a settlement, what are the procedures you need to follow? And how much, if any, will you owe in taxes?
Most people don’t immediately know the answer. But don’t worry. We’re here to help you get that exact answer on the tax status of personal injury settlements.
Are Personal Injury Settlements Taxable?
The most simple answer to this question is no, personal injury settlements are not taxable.
Not usually taxable, at any rate. There are some exceptions to this rule.
According to Publication 4345 from the IRS, which deals with injury settlements, your settlement is not taxable if you did not take an itemized deduction for expenses from prior years. If this is the case, then your full settlement is non-taxable, and should not be claimed as part of your income.
However, if any part of your settlement is deducted for medical expenses made in prior years, you are required to report that on your income. You are required to report the amount of your settlement that was applied to these deductions from previous years.
If that sounds like it could be pretty complicated, you’re right. Dealing with taxes and the IRS is rarely simple, and injury settlements are no different. You need to make sure that you accurately calculate the portion of your settlement that is being deducted for prior expenses.
More than that, you need to know if that’s part of your settlement in the first place.
If that is a part of your settlement, then there’s some good news. The IRS provides a calculation under Publication 525 to help you determine how much of your settlement needs to be reported.
Of course, if that’s going to happen at all, you need to be aware of it. It’s important to stay involved in every step of your personal injury settlement. Equally important is hiring the right firm to handle your case for you.
Finding the right personal injury attorney is critical. A good attorney can help you make sure as much of your settlement ends up in your hands as possible.
Find the Right Attorney for Your Personal Injury Settlement
So, are personal injury settlements taxable? It’s an important question, and not always an easy one.
Luckily, in most cases the answer is no, injury settlements are not taxable. But there are exceptions where you may have to claim part of your settlement with your income.
In that case, it’s important to make sure that you have the proper legal assistance to help you with your settlement.
If you’re dealing with a personal injury settlement, do your research and make sure you find the right attorney for the job. You’ll pocket more of your money that way, and you’ll make the whole process easier for yourself.
Did you find this article helpful? Browse our other posts for more great information on taxes, lawsuits, settlements, and legal advice.