When you file a personal injury claim, it is quite common for that claim to be resolved via an out-of-court settlement. The settlement will provide compensation for your medical expenses, lost wages, property damage (e.g., for an auto accident or motorcycle accident), and/or pain and suffering.

Once you agree to a settlement, an important question needs to be answered: is that personal injury settlements taxable? The answer is – it depends.

Receiving a settlement or court-ordered compensation often comes as a major relief to personal injury victims, many of whom lose their source of income during their recovery from their injuries. As you may have already experienced, bills for medical care and daily expenses can pile up quickly. When their check from the at-fault party arrives, victims can catch up financially and begin reconstructing their lives.

However, one thing that personal injury victims may wonder about is taxation. Specifically, are personal injury settlements taxable, and should you report them on your tax return? The answer is a bit complex. The IRS taxes personal injury settlements and awards based on several factors, including the category they fall into and whether you claimed exemptions in a prior tax year.

Since tax laws can be very complicated and often change, it’s best to seek individualized advice from an attorney concerning any settlement you receive.

In most cases, you will not owe taxes on compensation you receive for personal injuries. However, the IRS breaks your settlement into taxable and nontaxable categories. If the money you receive falls into specific buckets, you may need to declare it as income and pay taxes accordingly. Some types of compensation that are subject to tax include lost wages, punitive damages, and interest.

Have Questions? Contact an Experienced Virginia Beach Personal Injury Lawyer

Understandably, you may have lots of questions after an accident, including whether your settlement will be taxed or not. We are here to address your questions and concerns in a free consultation. When you work with us, you can rest assured that your case will be handled with utmost care and attention.