Having just wrapped up the 2018 tax season, taxes are fresh on everybody’s minds. Since nobody wants to be charged with tax evasion, it’s important to consider the tax consequences of all financial transaction, including personal injury settlements, which can be worth thousands if not much more.
If you file a personal injury claim, it will likely settle out of court because in reality, very few personal injury cases actually make it to trial. Once the responsible party offers you a fair settlement and you accept, the case is considered to be “settled.” From there, the other side cuts a check, your personal injury attorney’s contingency fees are deducted, you get your money and the case is closed. Or is it? The question is, does Uncle Sam get his hands on a portion of your personal injury settlement?
Personal Injury Settlements & Verdicts
Fortunately, the proceeds from personal injury awards are not generally taxable under Georgia State laws or federal law. It doesn’t make a difference if you accepted an out-of-court settlement or if you won at trial. As a general rule, neither the State of Georgia, nor the IRS can tax the proceeds from personal injury claims.
The following personal injury damages meant to compensate a victim for their losses are not taxable under state and federal law:
- Lost income
- Medical bills
- Loss of consortium
- Emotional distress
- Pain and suffering
- Damages for an occupational disease
- Attorney fees related to personal injury awards
“Are there any exceptions to the rule?” Yes, there are two specific exceptions: 1) physical injuries or sickness associated with a breach of contract lawsuit, and 2) punitive damages (which are always considered to be taxable). There is one other part of a personal injury verdict that can be taxed and that’s the interest on a judgement. So, if you receive interest for any reason, be aware that the interest portion is taxable.
Related: Advantages and Disadvantages of Out of Court Settlements
Looking for a Smyrna personal injury lawyer to help you file a claim for compensation? Contact Jones & Swanson to schedule your free case evaluation.