Do I Have to Pay Taxes on a Settlement From a Lawsuit?

Do You Have to Pay Taxes on Your Lawsuit Settlement?

Lawsuits can often become complicated and drawn-out. You may fight for months or even years just to finally get awarded your settlement. After all of that time and hard work will the satisfaction of finally getting your settlement be diminished by the IRS coming to take their dues?

Often is the case that taxes end up being taken out of a lawsuit settlement. This is because the IRS generally considers the money from settlements to be a form of income and taxes it accordingly. Naturally, this can be pretty frustrating after eventually getting the money you deserve. Luckily, this isn’t always the case. There are exceptions to this rule.

Settlements for Personal Injury Cases

If you were involved in a personal injury claim that resulted in a settlement you likely won’t have to pay taxes on the money received. If the injuries were physical in nature the IRS won’t tax the award settlements. These injuries would have to be visible or “observable bodily harm” for your settlement to be tax-free.

Settlements for Emotional Pain & Suffering

When it comes to emotional distress claims it’s a bit trickier. In some cases, these settlements may be considered tax-free while other cases would be taxed. On its own, emotional distress resulting in a settlement would be taxed. However, if the emotional distress resulted in medical attention, such as sessions with a counselor, those sessions may be tax-free.

For nonpersonal injury settlements, the awards would be taxed by the IRS as income.

Have additional questions or need assistance with your settlement in New Port Richey? Give us a call today and tell us what happened: 727-843-0097

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