One of the more important questions that clients want to know after they have received a personal injury settlement is if they have to pay taxes on the amount that is recovered. Typically, the money is not taxable, and you do not have to pay taxes on money from a personal-injury settlement.
That is confirmed by the Internal Revenue Service, which states that if a person receives a settlement for personal injuries or sickness and did not take itemized deduction for medical costs arising from the injury or sickness in the previous year, then no taxes will apply on the full amount. Basically, you do not have to pay taxes on the settlement amount.
However, there may be some exceptions to this rule. Any settlement will be subject to taxation, if the settlement replaces your income. For instance, if the settlement came as part of a lost profits business dispute claim, then the settlement could be taxable because it takes the place of the profits or income you lost.
Broadly, if your personal-injury settlement has involved compensation for injury that is physically apparent, then it is not taxable. However, for this tax exemption to apply, you should not have previously claimed medical expenses as itemized deductions while filing tax returns in previous years. If this has been done, then the settlement amount will be taxable.
A personal injury lawyer can more effectively answer questions about taxes on your settlement and any other questions that you may have.
One of our Meeting Locations: The Reeves Law Group 300 Esplanade Drive, Suite 900 Oxnard, CA 93030 (805) 367-3414