Personal Injury Settlements and Taxes

“Is my settlement money taxable?”

I get this ALL the time. It’s mostly a simple question, but like anything with the IRS, and it can get complicated pretty darn quickly.

Here is your best reference for this question:
https://www.irs.gov/pub/irs-pdf/p4345.pdf

If you got a few grand out of a car accident, that’s not going to be taxable. That’s most of what I see in my practice so it’s an easy answer.

Of course, it can get more complicated. Remember, income is taxable. The IRS default is to think of income as any money you take in, but there are exceptions. For your personal injury award, that’s compensation for for what you lost, so it’s not viewed as income, per se, but more like replacement value, so in that sense it’s not income. It’s kind of the same when you’re getting money to pay back medical expenses you’ve paid or owed; in that instance you’re essentially breaking even, so that’s not income.

But if you’ll read that IRS publication above, you’ll note that if you’ve taken tax advantage from those losses above, then you’ll need to report that you’ve made them up. This almost NEVER comes up in the tiny medical expense scenario of the average auto accident claim. But it could come up with some more complicated injury/treatment scenarios. Also, if you’re getting compensation for wages you lost which would have been counted as income, that can count, too.

Is it terribly complicated? Nah. But is it smart to seek advice? For sure. If you have an injury claim, talk to an attorney. Talk to me. 919-929-2992.

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Jeffrey Allen Howard, Attorney at Law, PLLC
1829 E. Franklin St. - Bldg 600
Chapel Hill, NC 27514

(P) 919-929-2992
(F) 919-636-4779

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