Is Personal Injury Settlement Taxable?
Bills and other expenses can pile up quickly months after an auto accident. While a personal injury settlement can come at the right time to save the situation, is it taxable in Georgia?
Fortunately for Georgia accident victims, personal injury settlements largely avoid taxation. The IRS exempts compensation for physical injuries and related damages from taxable income. Settlement sums awarded specifically for medical bills, lost wages, pain and suffering, and other accident-related losses remain tax-free.
Spaulding Injury Law: Atlanta Personal Injury Lawyers attorneys have significant experience in personal injury matters to protect your rights and ensure that you get the right compensation.
Personal Injury Settlements Are Not Gains
Personal injury settlements from a truck accident or other auto accident avoid taxation because they do not represent financial gains in the eyes of tax law. The income tax system solely targets new additions to a person’s wealth – gains above one’s existing means.
In contrast, injury settlements compensate victims for losses and damages inflicted upon their preexisting wealth. While settlement funds increase overall money available to a plaintiff, the origin stems from reimbursement for harm, not generation of excess income.
After being made legally whole through compensation, an injury victim maintains the same financial status they held before misfortune struck. The court-ordered payments create no actual gain relative to this baseline condition.
This means that most of a personal injury settlement remains exempt from income tax under the tax code’s principles. Victims secure compensation free of any government penalties or reductions. Their settlement sums make the plaintiff financially even with regard to the financial status disruption caused by the defendant’s negligent actions.
How Personal Injury Settlements Are Treated For Tax Purposes
Plaintiffs only potentially owe taxes on negligible portions of settlements tied to punitive fines or emotional distress unrelated to physical harm.
Even then, attorney fees lower taxable amounts. By understanding settlement tax exclusions, injury victims can rest easier knowing robust compensation awaits them without additional tax penalties.
Consult with a personal injury lawyer to maximize your after-tax settlement value. But generally, in Georgia, the well-deserved sums secured through your settlement belong entirely to you.
According to the IRS, here is how personal injury settlements are treated for tax purposes:
- Compensatory damages for physical injuries are NOT taxable. This includes coverage for medical bills, lost wages, pain and suffering, etc.
- Punitive damages awarded for the defendant’s extreme negligence MAY be taxable. Your attorney can advise you further in these cases.
- Compensation for emotional distress linked to physical injuries is also not taxed. However, non-physical distress compensation could be taxable.
Exceptions
Personal injury settlements only remain tax-free when tied to documented physical harm. Internal damage, sickness, infection, and ongoing surgical care qualify as demonstrable physical injuries supporting tax exclusion.
However, compensation awarded solely for emotional or psychological trauma unrelated to bodily harm becomes taxable without a corresponding physical component.
Additionally, lost wages awarded through employment discrimination settlements rather than injury claims may incur taxes since back pay constitutes recovered regular income. Plaintiffs may also see taxes on a settlement sum meant to reimburse medical costs deducted as losses on a prior year’s tax return – essentially recouping a past tax break.
Typically, personal injury settlements avoid all taxation, with the above situations only potentially triggering taxes on a fraction of the total award. For instance, if you deduct past emergency room bills but not recent surgery expenses, the surgery portion would still be tax-free.
Consult an attorney to maximize tax-exempt settlement allocation and minimize taxable portions tied to rare situations. Under most circumstances, physical harm settlements get excluded wholesale.
Talk To a Georgia Personal Injury Attorney Today
Taxes should not be a financial burden added to your recovery. Contact an Atlanta personal injury lawyer from Spaulding Injury Law to help structure your settlement favorably with taxes in mind and answer any related questions. Talk to us, and we’ll safeguard your rights in your claim.
When you become our client at Spaulding Injury Law, you’ll be represented by a thoroughly experienced Atlanta personal injury attorney like Theodore A. Spaulding. For over 15 years, Mr. Spaulding has helped victims of negligence across the state of Georgia resolve personal injury cases, and he’s received a remarkable number of awards and honors from the legal community recognizing his commitment to clients and to the metro-Atlanta area.
Mr. Spaulding has been named one of the Top 100 trial lawyers in Georgia by the National Trial Lawyers for six successive years.
He is honored as a lifetime member of the Million Dollar Advocates Forum ® by the Top Trial Lawyers in America ®.
Charter Member of the Distinguished Justice Advocates.
Member of the Atlanta Bar Association.