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Do I Have to Pay Taxes on a Lawsuit Settlement?

Determining whether or not you owe taxes on the money you receive from a lawsuit depends on many factors and can be a very complex issue in some cases. Following is some general information about income taxes as related to legal settlements.

In most cases, the money you receive as a result of physical injures is not considered taxable income – in which case you would not have to pay taxes. However, sometimes it’s not that simple. For instance, if you have already claimed a tax deduction for your medical expenses from your injuries (or any other deduction related to the accident), then your settlement money WILL be taxable. That’s because under IRS laws, you cannot receive the same tax break twice.

Examples of legal damages that are considered taxable income include money you receive for emotional distress, back pay, interest on unpaid money and punitive damages. Just to clarify, punitive damages are awarded as a way to punish the defendant in a lawsuit for conduct that was especially offensive or outrageous.

The fact is that tax issues related to legal damages can be so complicated that it’s often a good idea to hire a tax accountant when you receive a large settlement. That’s the best way to make sure that you don’t inadvertently break any tax laws or get into legal trouble due to your settlement.

Injured in an accident? Call Morrow, Gates and Morrow today.
If you or someone you love is injured through no fault of your own, you should get legal help as soon as possible. The attorneys at Morrow, Gates and Morrow have a great deal of experience handling personal injury cases including car and truck accidents, offshore injuries, Workers’ Comp cases and much more. We’ll work hard to help you get the compensation you deserve.

Disclaimer: The blog posts from Morrow, Gates & Morrow consist of hypothetical scenarios, opinions and generic information. These scenarios are in no way meant to assess blame on any party in real-life situations and are presented for informational purposes only.

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