What Is A Personal Injury Case And Is The Settlement Taxable?
On a monthly basis I answer hundreds of questions from clients and the one or two that consistently get asked are… “Does my claim qualify as a personal injury case, and if it does and it’s successfully settled, will the settlement be taxed?”
Let’s first focus on the definition of “personal injury”.
In layman’s terms personal injury means any injury to the body and mind (the mind being your emotional stability and wellbeing).
So what types of injury situations qualify as a personal injury case?
There are several types of personal injury cases, but the most common types of personal injury cases involve road traffic accidents, work accidents, tripping (slip and fall) accidents, assault, product liability, and injuries occurring in medical, dental and industrial settings. Examples of injuries that can occur in an industrial setting include cases where the plaintiff (the one injured) may suffer from chemical burns, asbestos exposure, and inhalation of toxic material.
Many, but not all, personal injury cases are based on the premise that someone’s negligent acts or omissions caused another person injury. Winning personal injury cases involving negligence comes down to proving 4 things…
- The defendant (opposing party/person/entity) owed a duty to the plaintiff (the injured party) to conform to a specific standard of conduct under the circumstances;
- The defendant breached that duty;
- The defendant’s breach of the duty caused plaintiff’s injury; and
- Plaintiff suffered damages due to the injury.
Damages can cover a wide range of things, including both economic damages (like medical expenses due to bodily injury) and noneconomic damages (like pain and suffering or infliction of emotional distress), relating to the past, present, and/or future.
Now once a personal injury case is settled, you may wonder what happens next. After all, the settlement money is supposed to be used to help compensate you for actual losses suffered—including lost and future wages and medical care and expenses related to helping you regain the quality of life you had prior to the injury.
Many ask, “Is my settlement taxable?”
Usually not, but depending on certain circumstances it could be.
Let me explain…
In the United States, the money awarded in a personal injury case is typically not taxable. But to clarify…here’s a statement from the IRS in regard to personal injury settlements… “If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.”
There are exceptions to the rule. And the tax law surrounding settlements can be complex.
If you’ve been hurt in an accident or injured and would like to discuss your case with our firm we’d be happy to listen and guide you in the right direction. This is something we do every day. We welcome your call and look forward to helping.