Are Personal Injury Settlements Taxable?
One question our office often hears is whether or not personal injury settlements are taxable.
Like most tax-related issues, the answer is it depends–especially after the significant changes made in 2017 under the previous administration. Here are a few things to keep in mind:
- In general, funds from a personal injury settlement or jury verdict are not subject to state or federal income taxation–but this tax-free treatment only applies to compensatory damages.
- Remember, compensatory damages compensate the injured party for loss or injury, whereas punitive damages punish a wrongdoer.
- Punitive damages and interest are always taxable.
- Per the Tax Cuts and Jobs Act of 2017, to qualify for the federal tax exclusion, the money you receive from a settlement must be directly related to physical injuries. If you received compensation for emotional distress, anxiety, or other “pain and suffering,” your settlement may be taxable.
The clauses and exceptions surrounding this issue are quite complicated, so if you received a personal injury settlement or know someone who did, give our office a call. We’d be more than happy to listen and make sure you (or a loved one) aren’t paying more than you should.
All of our contact information can be found at ravosalawoffices.com. Or call us today at 508-655-3013.