Can Personal Injury Settlements Be Taxed?

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If there’s one thing out there that’s confusing and stressful, it’s taxes. Add a personal injury settlement into the mix, and the confusion could escalate to a whole new level.

At our personal injury firm in Atlanta, we’re often asked if personal injury settlements can be taxed. The short answer is that they normally aren’t — but there are, of course, exceptions.

In today’s blog, we’re going to cover personal injury settlements and taxes. If you have any additional questions or are ready to start working one-on-one with a personal injury attorney, then contact The Fairell Firm today. Our personal injury firm helps clients throughout Atlanta, and we’re conveniently located in Tucker. Contact us today to get started.

Personal Injury Settlements (Usually) Aren’t Taxed

According to the IRS, money from a personal injury claim or lawsuit is considered “compensatory,” meaning it’s money meant to compensate for your loss; it’s not considered wages, salaries, or tips. For the most part, compensatory income is nontaxable. However, there are exceptions (outlined below) and you could find yourself owing a lot of money next tax season if you automatically assume your personal injury settlement won’t be taxed.

What Isn’t Considered Taxable By The IRS?

The IRS says exactly which portions of personal injury settlements cannot be taxed. These include money awarded to compensate you for the following:

  • Physical injuries
  • Emotional distress caused by physical injuries
  • Lost wages as a result of physical injuries

This could include everything from medical bills to lost income to compensation for your pain and suffering.

What Is Considered Taxable By The IRS?

As always, there are exceptions.

Double Tax Benefits

If you received any kind of tax benefit in the past related to your personal injury case, then you may not use any additional benefits. This is known as a “double-dip” situation. Essentially, you cannot double dip and be compensated twice for the same expense. If you’ve been compensated in the past for the expense, then you must pay the IRS back what was deducted in the past and list it as “other income” on your tax form.

Investments and Interest

On your tax return, there is a spot to enter “interest income.” If you earn interest on any money recovered from your personal injury case, then the interest is not tax-exempt (even though the money from the case most likely is). Additionally, if you buy any investments with your settlement money, then that can be taxed as well.

Work With An Atlanta Personal Injury Firm Today

One thing is for certain through all of this: if you’ve sustained a personal injury, then you deserve representation. Once you file your personal injury claim and (potentially) win your case with the help of our personal injury attorneys, you can use this blog and other resources from the IRS to help you know how to list your settlement on your tax forms. If you’re in the Atlanta area, then contact our personal injury firm today to get started. We’re conveniently located in Tucker and can help you on your accident claim.


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