More than often, a personal injury claim can be made if a duty of care is owed to you by a person responsible and the negligence of that person breached that duty of care. A claim can be made against the entity who owed you a duty of care. This party may be the driver of a car (such as in a road traffic accident case), the building management (in cases of slip/trip and falls) and the like. If you have sustained injuries from an accident, you should consider seeking compensation for your injuries along with other related losses and expenses. After reaching a settlement and getting your compensation, personal injury claims are usually not taxed by the Internal Revenue Service (IRS). However, there are some notable exceptions.

Punitive Damages

A personal injury plaintiff can receive punitive damages from the defendant in certain cases. Punitive damages are used to further punish the defendant for criminal wrongdoing, not to pay for damage incurred. As punitive damages are not bound to a loss, the IRS customarily counts them as taxable income. A punitive damages claim can have its verdict separated into compensatory damages and punitive damages by the court after intervention from a personal injury attorney. This can prove to the IRS that part of the verdict was for compensatory damages, which is tax-exempt.

Interest Earned on the Judgment

Certain settlement agreements have the claimants allowing their owed compensation to be paid over a period of time (in some cases several years). The catch is that the claimant is owed interest on the unpaid amount as time goes on. Any interest earned on the settlement awarded is taxable by the IRS. The good thing is that the original settlement award you gain is tax-exempt.

Lost Wages

Often, a personal injury settlement can include compensation for the wages lost due to your injury keeping you out of work. This can come along during an employment-related lawsuit. As lost wages are linked to your regular income, this will be taxed by the IRS.

Emotional Distress Damages

It’s good to remember that a verdict will not be taxed only as long as it stems from a physical injury. Claims for emotional injury will be taxable unless physical injuries can be proven. As such, emotional distress suffered during legal proceedings, such as headaches and stomachaches, will be taxed by the IRS as these physical symptoms are not visible. A notable exception is when the distress is linked to a physical illness or injury. Medical expenses related to emotional distress are tax-exempt.

Non-Taxable Verdicts



With the verdicts that culminate in taxable settlements covered, here are some common examples of non-taxable settlements:

• Dog attacks
• Workplace and construction-related injuries
• Medical malpractice, including issuing defective medication that causes harm due to side effects
• Motor vehicle accidents that cause physical injury
• Injuries caused by property or building neglect (such as a icy staircase that causes a fall)
• Product liability

Personal injury claims are hardly so straightforward. If parties are unable to reach an agreement, a qualified personal injury lawyer would be very useful in helping to mediate or represent you in court, if brought to trial.