When it comes to the question of whether or not personal injury settlements are taxable, the short answer is, it depends. The amount of money that makes up a personal injury settlement comes from different considerations.
Those considerations are treated differently for tax purposes. First, a portion of a personal injury settlement will be based on paying for the medical costs associated with the injury. If you have taken a tax deduction based on the amount of medical bills you paid as a result of the injury, you must claim the settlement as income to “pay back” that deduction.
If you didn’t claim medical expenses, the full amount is not taxable. Another portion of personal injury settlements are dedicated to loss of work after an accident. This amount of money is treated as self-employed income at the end of the year.
The money you receive for property damage is not generally considered taxable, although you’ll need to reduce the value of your property accordingly. Punitive damages, or the amount of money awarded as punishment to the negligent party, are considered taxable and must be reported just like other forms on income.
An Atlanta personal injury lawyer can provide more information about details of a settlement.