Do I Have To Pay Taxes On My Settlement?

When pursuing a legal claim, the ultimate goal is usually to recover some type of monetary compensation either through settlement of the claim or by court award. The legal term for money an injured person seeks to recover in a lawsuit is  "damages".

The type of damages you are seeking dictate whether or not you are required to pay taxes on the money you receive. The following chart outlines which types of damages are generally taxable as income and which types are not:

1. Damages for a Personal Injury:
Generally NOT taxable as income.

2. Pain/Suffering/Emotional Distress for a Personal Injury:
Generally NOT taxable as income.

3. Pain/Suffering/Emotional Distress for a case that DOES NOT INVOLVE Personal Injury:
Generally are TAXABLE as income.

4. Lost Wages/Back Pay/Front Pay:
Generally are TAXABLE as income.

5. Punitive Damages (awarded by the court to punish wrongdoer):
Generally areTAXABLE as income.

It is ALWAYS wise to consult your attorney AND a tax professional BEFORE accepting a settlement or going to trial on your case in order to fully understand the potential taxes you may have to pay.

Should you have any questions regarding the tax consequences of damages, please do not hesitate to call me at 413-746-4400 or email me at nle@dennerpellegrino.com.