Our Blogs

Do I Have to Pay Taxes on My Personal Injury Settlement?

You’ve gone through the process and your personal injury lawyer has successfully won a settlement for you the previous tax year. Your question: is this money mine? What are the most common scenarios and is the money from a personal injury settlement taxable?

Ordinarily No

In general, the money that is received from a personal injury settlement is not taxable as long as it was received due to a physical injury or physical sickness. The IRS states that:

If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income. (IRS) In short, in most cases, if you did not claim a deduction on the medical bills, which resulted from the injury or illness, the settlement money is all yours.

However, there are circumstances, which deem personal injury settlement cash taxable. When is my settlement considered taxable? In general, the Internal Revenue Service (IRS) will only seek to tax personal injury settlements if the settlement is meant to replace your own income.

Income Replacement:

In the event that your settlement is meant to replace income (e.g. employment discrimination or a lost profits claim from a business) then the claim can be taxed. There are a few other instances that may be considered income replacement, so if this is something that you are worried about, it is important to consult a tax attorney to determine whether your settlement is taxable based on the unique circumstances of your case.

If your personal injury settlement is compensation for a physical observable injury, then the general rule is it will not be taxable. However, those are difficult quantifiers if the injury may be internal or mental.

Settlement taxes featured small
Medical Deductions Have Been Performed:
The other specific instance where your personal injury settlement may be taxed is in the event that you have previously claimed medical expenses.

According to Tax Attorney John Claudell:

“If you itemize deductions and you claimed medical expenses in previous years as an itemized deduction that were later reimbursed by the settlement then that amount would be taxable.”

Essentially what the IRS is saying here is that if you have claimed the money as a deduction from your taxes previously then there is the chance that the personal injury settlement you have received will be taxed. The exact wording from the IRS website is as follows:

If you receive a settlement for personal physical injuries or physical sickness, you must include in income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to the extent the deduction(s) provided a tax benefit. If part of the proceeds is for medical expenses you paid in more than one year, you must allocate on a pro rata basis the part of the proceeds for medical expenses to each of the years you paid medical expenses. See Recoveries in Publication 525 for details on how to calculate the amount to report. The tax benefit amount should be reported as “Other Income” on line 21 of Form 1040. For more information, visit us here

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2760.8660314204726!2d-119.17241008441732!3d46.213119979116975!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x54987909cb050151%3A0x5d2f49572a4c0a99!2sRitchie-Reiersen%20Injury%20%26%20Immigration%20Attorneys!5e0!3m2!1sen!2sin!4v1637580733417!5m2!1sen!2sin
Location Map

316 North Neel St. Kennewick, WA 99336

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2705.417985955794!2d-122.23380398437988!3d47.30617227916594!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x5490f7d7e1ff9c09%3A0x8412900dc266135b!2sRitchie-Reiersen%20Injury%20%26%20Immigration%20Attorneys!5e0!3m2!1sen!2sin!4v1637580945425!5m2!1sen!2sin
Location Map

110 2nd St. SW Suite 135 Auburn WA 98001

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2742.0725272398186!2d-120.56369058440468!3d46.5858035791302!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x5499d62f340a88d1%3A0x9e2f8604687861c2!2sRitchie-Reiersen%20Injury%20%26%20Immigration%20Attorneys!5e0!3m2!1sen!2sin!4v1637581212426!5m2!1sen!2sin
Location Map

3919 W. Nob Hill Blvd Yakima, WA 98902

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2712.0583372940328!2d-122.4357985843843!3d47.17629437915846!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x549101dac21ffe2b%3A0x5e4dcde225fcbca8!2s8833%20Pacific%20Ave%20S%2C%20Tacoma%2C%20WA%2098444!5e0!3m2!1sen!2sus!4v1646428403617!5m2!1sen!2sus
Location Map

8833 Pacific Ave Suite I Tacoma WA 98444

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2797.644629116435!2d-122.67456318444218!3d45.47696217910102!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x54950b2e30d076d7%3A0x22fad5c6159bad63!2sRitchie-Reiersen%20Injury%20%26%20Immigration%20Attorneys!5e0!3m2!1sen!2sin!4v1637581706906!5m2!1sen!2sin
Location Map

5331 S. Macadam Avenue Suite 130 Portland OR 97239

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2714.3339018442944!2d-119.28043868438589!3d47.13172407915601!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x5499394bddf63aa9%3A0xbc1f426ff7a9a81f!2sRitchie-Reiersen%20Injury%20%26%20Immigration%20Attorneys!5e0!3m2!1sen!2sin!4v1637582035051!5m2!1sen!2sin
Location Map

122 E Broadway Ave Moses Lake WA 98837

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d3331.632174654699!2d-111.8088508!3d33.380667700000004!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x872ba8f601302f89%3A0x7a4c90625dd36328!2s1910%20S%20Stapley%20Dr%20221%20208%2C%20Mesa%2C%20AZ%2085204!5e0!3m2!1sen!2sus!4v1659987301199!5m2!1sen!2sus
Location Map

1910 S. Stapley Drive Suite 221, Office 208, Mesa AZ 85204

https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2938.6104370452354!2d-114.45740592388013!3d42.5635641711746!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x54aca3b793620007%3A0x47b6bed15d947e74!2s1525%20Addison%20Ave%20E%20%239%2C%20Twin%20Falls%2C%20ID%2083301!5e0!3m2!1sen!2sus!4v1712600229638!5m2!1sen!2sus
Location Map

1525 Addison Ave E Suite 9 Twin Falls ID 83301