Personal Injury Law

Georgia Serious Injury Cases: Frequently Asked Question Number 4

This blog will continue in our series of providing our readers with answers to frequently asked questions in the context of a serious injury case. This blog will address FAQ number 4:

4. If I obtain a settlement from the at fault defendant, do I have to pay taxes on my settlement?

Answer: Restitution for a loss is not considered to be income. According to the majority view and interpretation of current IRS law, if an injured individual obtains a settlement from an at fault third party, that settlement is not taxable. There are exceptions to this rule, however, with respect to punitive damages. If a jury returns a verdict for punitive damages in addition to compensatory damages, the punitive damage portion of the verdict is taxable. To date, most experts seem to agree that any verdict returned in a personal injury case is not taxable absent a verdict for punitive damages as well. This is the general view of the tax laws as pertains to personal injury settlements. While different variations of a claim could subject a particular claim to taxation, most tort claim settlements are not taxable because the monies obtained in settlement are not considered to be income by the IRS but rather are considered to be restitution for a loss, something by definition separate and distinct from traditional forms of income.

Full post as published by Georgia Injury Lawyer Blog on January 27, 2008 (boomark / email).