Will You Owe Taxes on Your Personal Injury Settlement?

Will You Owe Taxes on Your Personal Injury Settlement?

Richard N. "Rick" Shapiro

Richard N. "Rick" Shapiro

March 9, 2023 11:59 AM

If you were seriously injured in an accident caused by someone else's negligence, then you and your Virginia Beach accident attorney will likely pursue financial restitution for your harms and losses via a personal injury claim. This claim will likely be filed with the at-fault party’s insurance company. A question frequently asked by clients is, "How much tax will I owe if I receive a sizable settlement or jury award from my claim?" Keep reading for the answer.

Compensatory Damages Not Subject to Income Tax

According to Internal Revenue Code Section 104, compensatory damages received for a personal injury are not subject to income tax. This means that they money you receive to reimburse you for your medical expenses linked to an accident will likely not be taxable under the federal tax code. In addition, according to the IRS, money received to reimburse you for lost wages are not taxable if the money was paid out in relation to a personal injury claim.

    Compensation for Mental and Emotional Distress

    According to Internal Revenue Code Section 104(a)(2), compensatory damages recovered for mental and emotional distress in a personal injury case is not considered taxable income. That means any portion of your settlement that is specifically identified as non-economic compensation should not be taxable. Non-economic compensation can include reimbursement for:

    • Pain and suffering
    • Post-traumatic stress disorder
    • Anxiety
    • Loss of enjoyment of life
    • Depression related to the accident

    Contact a Personal Injury Lawyer in Virginia Beach Today

    If you or a loved one was seriously harmed in a preventable accident, take action by contacting our personal injury law firm in Virginia Beach to discuss your legal options. If you hire our firm, we will immediately go to work and investigate the accident to determine who was at fault for your harms and losses. In addition, we will gather all available evidence to prove who was at fault and show the extent of your injuries. We will also negotiate with the at-fault party’s insurance company to get the best settlement possible, and if that doesn’t work, we can take your case to court.

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