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Tax Season Know-How: Is Your Personal Injury Claim Taxable?

personal injury claim settlement

Tax season is here, and we are all working on getting our personal finances in order. If you have been involved in a personal injury claim in the past year, you may want to know which items of your settlement are taxable and which aren’t. In short, most personal injury claims are not taxable. We will walk you through the differences of each personal injury claim to prepare you for this tax season.


Physical Injury

For the most part, personal injury claims that involve a physical injury are not taxable. The federal government does not include money earned from personal injury or sickness as a part of an individual’s taxable income. This lack of taxation is to account for money spent for medical bills, legal fees, and lost wages.


There are exceptions to this rule. It depends on the basis of your lawsuit, if personal injury was not the basis and only a constituent, it is possible that you will be taxed on that settlement. For this reason, it is important to separate your settlement into different amounts for each damage. This means that if you are settling for another claim as well as a personal injury claim, make sure each claim is separated into a dollar amount. This will ensure that money received from your physical injury will not be taxed come tax season.


personal injury claim


Emotional Injury

Unfortunately, emotional injury stemmed from a personal injury claim does not receive the same tax exemptions that physical injury and sickness does. This is not conclusive. If you can prove that an emotional injury showed any signs of physical distress, it is likely that your claim may not be taxable. Proper documentation of your emotional distress can make the difference in a personal injury lawsuit. For this reason, it is important to always consult with a lawyer before accepting a settlement.

Navigating personal injury cases are a tricky endeavor, especially if you want to receive the most out of your settlement. If you have been the victim of personal injury, contact Colley & Colley law firm in Austin, Texas for a free consultation. We want to make sure you get the most out of your personal injury claim this tax season.