Right around the time of settlement, many clients ask me about the consequences their settlement will have on their taxes.

First, I am not a tax attorney nor an accountant, if you want specific tax advice, go see a qualified tax professional. That said, generally speaking, personal injury settlements are not treated as taxable income. There are several exceptions:

First, if you receive a separate check for lost wages, that money is taxable as if you earned it as wages.
Next, if the release contains a confidentiality provision – the IRS can treat a portion of the settlement as consideration for confidentiality and tax you on it. The best bet is to make confidentiality mutual.
Finally, if you used medical bills that you paid to reduce your tax liability in a prior year and are now receiving money for those same bills, you will need to amend your prior taxes and pay any difference.

If you have questions about personal injury claims please contact Scott for a no cost, no obligation consultation and case evaluation.