Find Out If Personal Injury Awards & Settlements Are Tax-Free
Uncle Sam and the Internal Revenue Service don’t miss a trick when it comes to collecting taxes. But just how is a jury award or settlement from a personal injury suit affected by the taxman? We’ll talk about it in this issue.
Personal Injury Awards & Settlements – and The Tax Code
Before 1996, just about all jury awards and settlements from personal injury cases were not taxable, meaning you didn’t have to pay taxes on those monies. In 1996, however, changes were made to Section 104 of the U.S. tax code that limited the tax-free status to only awards or settlements for physical injuries or physical sickness. As long as you experienced a physical injury, monies meant to compensate you for medical bills, lost wages, loss of consortium, emotional distress, pain and suffering, lawyer fees, etc. are tax-free. The physical sickness qualifier refers to being made sick because of someone else’s actions.
Things That Can Make Your Award or Settlement Taxable
There are a few exceptions that will make your award taxable by the IRS.
- Interest added to the award or settlement Regardless of how much the defendant is ordered to pay you, most states will tack on interest to the award for the entire time the case has been pending.
- Awards for emotional injury only If your suit is based upon emotional distress but there is no physical injury, the monies you’re awarded will be taxable.
If You’ve Been Hurt By Someone Else, Call The Oswalt Law Group
Just about every legal and tax rule has exceptions. That’s yet another reason why it’s crucial to speak with a personal injury lawyer before you accept a proposed settlement. Give us a call here at The Oswalt Law Group. The first consultation is always free, and out number is 602-225-2222.