Is My Personal Injury Settlement Taxable- ? by Columbus Ga Lawyer Mark Jones
I am often asked by clients in Columbus, Georgia and Phenix City, Alabama whether their personal injury settlements for their slip and fall or automobile accident claims are taxable. The short answer is that, generally speaking, your personal injury settlement is NOT taxable if the compensation stems from physical injury or physical sickness involving a traditional tort (such as an automobile wreck or slip and fall). The reason for the rule is that the injured person has already been injured once — we should not injure them again by forcing them to pay taxes on their settlement!
The specific statutory authority for the tax-exempt status of personal injury claims is based on physical injury or physical sickness found in IRC Section 104.
The law is somewhat murky here, but the following guidelines emerge after reviewing IRS publications and IRC Section 104.
Guidelines for Nontaxable Personal Injury Settlements:
- Settlements stemming from physical injury, defined by the IRS as “observable, bodily harm”;
- settlements originating from a traditional tort action, such as a car wreck, slip and fall, or medical malpractice claim
Guidelines for Taxable Settlements:
- Pure emotional distress claims with no accompanying physical injury will be taxable;
- Claims involving punitive damages are taxable;
- Employment-based claims (e.g., unlawful discrimination) involving lost or back wages will be taxable
For more information on the taxability of your settlement, please review IRS publication 4345. If you have any questions about your personal injury case, please call Lawyer Mark Jones today for a free consultation! 706-225-2555.
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