Is a Personal Injury Settlement Considered Income?

A personal injury settlement can be considered income depending on what you received the payment for, rules and regulations around taxes in your area, and how the money is given to you. Before you submit your personal injury claim, it’s important to make sure you understand the different settlements you can qualify for and how taxes could affect them.

As you look for one of the best personal injury or car accident attorneys in Phoenix for your case, make sure they fully understand the types of compensation you could receive and the tax laws that may impact it.

What Makes a Personal Injury Settlement Income?

Your money from a personal injury settlement might be taxed because of the different parts that go into a settlement payout. You need to know what these different parts are and how they can impact the taxes you could pay.

Interest on the Settlement

Sometimes, your personal injury settlement may gain interest costs between the time the settlement is agreed upon and when it is paid. This could occur if the settlement agreement includes such a penalty or if you need to seek court intervention to enforce the settlement.

The amount of interest earned by your injury settlement before you receive it is considered taxable income. So, be sure to ask your personal injury or car accident lawyer how long personal injury cases take to settle and when you should expect to receive your settlement.

Award for Emotional Pain and Mental Suffering

Any repayment for emotional and mental pain caused by a personal injury is not taxed as income. However, if you receive money for other reasons that are not directly linked to the injury, that money could be taxed.

Lost Wages

Compensation for lost wages due to personal injury is taxable because it’s intended to replace the income you would have earned.

Non-Taxable Elements of a Personal Injury Settlement

Award for Physical Injuries or Illness

Any compensation given for physical injuries or sickness can’t be taxed. For instance, any amount given for physical and mental pain caused by the physical injury can’t be taxed. This includes medical expenses you need to pay as a result of the injuries from the accident.

Monetary and Legal Viewpoints of a Personal Injury Settlement

Compensation for Financial Support

If you rely only on your personal injury settlement for monetary support, including daily expenses, the Internal Revenue Service may consider it taxable income. But this doesn’t make it ‘income’ that you can use to qualify for certain tax benefits.

Means-Tested Benefits

The money you get from a personal injury settlement could change whether you can receive benefits like Medicaid or other help from the government. You may need to set up a special savings account so you can still receive those benefits.

In Closing

Whether your personal injury settlement is taxable income depends on several things, such as context, the tax laws in your area, and the type of compensation at hand. Your Gage Mathers attorney can help explain everything you need to know, so call us for a free consultation today!

About the Author

Joseph D'Aguanno

Guided by the belief that being a highly skilled specialist in a narrow field is better than being ordinary in everything, Joseph “JD” D’Aguanno leads Arizona’s best personal injury law firm in Phoenix, AZ. Having extensive cross-training in pre-litigation negotiations and trial lawyer skills, with decades of experience, JD strives to provide clients with the most valuable legal services a personal injury lawyer can provide. Under his direction, Gage Mathers Law Group is an award-winning personal injury law firm providing aggressive representation to victims of a car accident, medical malpractice, dog bite, motorcycle accident, and other injurious events. Gage Mathers is trusted by thousands of lawyers and clients throughout the country because of their reputation for getting clients the maximum compensation they deserve.

Years of experience: Over 23 years
Bar number: 020421
Location: Phoenix, AZ
JD’s Profile