In most cases, you do not have to pay taxes on insurance settlements for personal injury claims. Under federal and Georgia law, settlements for medical expenses, pain and suffering from a physical injury, lost wages, and property damage are typically not taxable.
However, certain parts of a settlement—such as punitive damages, interest, and emotional distress unrelated to a physical injury—may be taxable.
Understanding the tax rules can help you avoid unexpected costs. If you have questions about your settlement, our Marietta personal injury lawyers can discuss this with you during a free consultation, but we always recommend getting advice from a CPA or tax attorney.
What Parts of an Insurance Settlement Are Not Taxable?
Most personal injury settlements are not taxable under federal and Georgia state laws. This includes money received for:
- Medical expenses: Compensation for hospital bills, surgeries, medications, and therapy is not taxable.
- Pain and suffering: If tied to a physical injury, this part of a settlement is not typically taxed.
- Property damage: Compensation for repairing or replacing your damaged property is usually not taxable unless it exceeds your original loss.
Examples of When an Insurance Settlement May Be Taxed
Here are a few examples that illustrate when a settlement could be fully or partially taxable:
- Car accident with punitive damages: If you were hit by a reckless driver and received punitive damages, that portion of your settlement would be taxed.
- Delayed settlement with interest: If your claim was settled months later and included interest on the delayed payment, that interest could be taxable.
- Emotional distress without physical injury: If you received money for stress or anxiety that was not caused by a physical injury, it may be taxable.
If you’re unsure how your settlement will be taxed, speaking with an attorney from our team can help you navigate these complexities.
How We Can Help With Your Insurance Settlement
Dealing with an insurance settlement can be challenging, especially when taxes are involved. Our experienced team understands Georgia law and can advise you on how to handle your financial responsibility. We will:
- Explain how your settlement could be taxed, and connect you with a tax attorney or CPA as needed
- Seek to maximize your recovery while minimizing tax burdens
- Handle negotiations with the insurance company. We will advocate for the recovery of a fair settlement.
- Ensure you meet Georgia’s two-year filing deadline under Ga. Code § 9-3-33
What to Do if You Receive a Taxable Insurance Settlement
If you learn that part of your settlement is taxable, here’s what you should do next:
- Set aside funds for taxes: If you expect a tax bill, plan accordingly so you aren’t surprised when filing.
- Report taxable amounts correctly: The Internal Revenue Service (IRS) requires you to report any taxable portions on your tax return.
- Consult a tax professional: If your settlement includes different types of damages, a tax expert can help you determine what is taxable.
- Keep detailed records: Maintain copies of your settlement agreement and any tax documents provided by the insurance company.
Can You Lower Taxes on an Insurance Settlement in Georgia?
Some strategies can help you legally reduce the taxes on an insurance settlement:
- Structured settlements: Instead of a lump sum, some settlements can be paid over time, potentially reducing taxable income in any given year.
- Medical expense deductions: If you deduct medical expenses related to the injury in previous tax years and then receive a settlement for those costs, you may have to adjust past tax filings.
- Allocating damages: If your settlement includes taxable and non-taxable damages, properly allocating them in the settlement agreement can clarify tax obligations.
We can help structure your settlement in a way that minimizes tax burdens. If you were injured and must file an insurance claim, don’t wait too long.
As mentioned earlier, Georgia law generally gives you two years to file a personal injury lawsuit under Ga. Code § 9-3-33. Missing this deadline could prevent you from receiving the settlement you deserve.
So don’t wait! Call the team at Jones & Swanson quickly so we can begin guiding you through the claims process immediately and ensure the timely handling of your legal matter.
Concerned About Taxes on an Insurance Settlement? Call Us
We recognize how complicated insurance settlements can be—especially when taxes come into play. Let us simplify the process for you. Unlike large, impersonal firms, we proudly provide personalized service, return calls, texts, and emails, and fight for the best outcome for our clients.
Our firm is a smaller firm by choice, meaning we offer:
- Better client service and one-on-one attention
- Experienced attorneys who are leaders in Georgia’s legal community
- Commitment to excellent results and diligence in every case
- Resources to handle big cases that other small firms can’t manage
If you’re concerned about paying taxes on your insurance settlement, let Jones & Swanson guide you through the process. Call us today for a free consultation.
