What is subject to tax?
Physical Injury Compensation is one of the only areas of finance that is not taxed. Proceeds received from most personal injury claims are not taxable under any law—federal or state law.
This is because this it is not “income.” Remember that we tax income with an income tax. And we tax gains with capital gains.
A personal injury settlement is not “gain.” It is considered “compensation.” In other words, getting you back to zero.
This is true even if the settlement involved millions of dollars, which some of mine have. Whether we settled the case before or after filing a lawsuit in court, or won a big verdict, the result is the same. The Internal Revenue Service (IRS) excludes damages received as a result of personal physical injuries or physical sickness from a taxpayer’s gross income. Therefore, it is not even considered.
Personal injury damages will usually result in medical bills, loss of enjoyment of life, emotional distress, pain and suffering, loss of consortium (spousal damages), and lost wages are not taxable when caused by a personal injury.
Only the rarest cases that involve things like punitive damages, front and back pay in employment law cases, and significant confidentiality agreements are potentially subject to tax
Mr. Peel seeks justice for those injured in motorcycle, truck and car accidents, disability and medical malpractice. He often addresses churches, clubs and groups without charge. Mr. Peel may be reached through PeelLawFirm.com wherein other articles may be accessed.