By Jedidiah McKeehan
When I represent people in personal injury cases, and the case is getting near its conclusion, there is usually a discussion about the settlement money the client may receive. One of the common questions that is asked is whether the money they received will count as income to them and therefore money on which they would have to pay taxes.
Although I am not a tax attorney, the answer is, “probably not.” Monies received by the client for medical bills, physical injuries or pain and suffering are not taxable.
However, if you receive money as part of a settlement for emotional damages that money is taxable. Likewise, if you receive an award of punitive damages at trial, that money is also taxable. Money received for lost wages may be taxable as well, depending on the circumstances. The vast majority of people do not have to worry about this though since the normal car wreck case entails damages for medical bills and physical injuries and not for emotional damages, but if you are unsure, you should consult with a tax professional.
At this point, let me throw in my two cents on why I think the government has decided that personal injury money is not generally taxable. When we think about the taxes that the government is collecting from people, we tie that to when people are earning money and (hopefully) improving their position in life.
However, in a personal injury case, when you receive settlement money for your injuries, you are not really earning money to improve your position in life, you are attempting to get back to the place in life that you were prior to the accident.
In all likelihood, you will not have to pay taxes on the money you receive as part of your personal injury case.
Jedidiah McKeehan is an attorney practicing in Knox County and surrounding counties. He works in many areas, including divorce, custody, criminal, personal injury, landlord-tenant, and estate planning.