Do you have to pay taxes on personal injury settlements? This is a question that a lot of people ask us because they’re not sure what awaits them after they’ve won their case and received their settlement.

Personal injury damages refer to compensation received for lost wages, medical bills, emotional distress, pain and suffering, loss of consortium, and attorney fees. Fortunately, in the State of Florida, most personal injury settlements are not taxable by state law.

Additionally, the federal government doesn’t usually tax personal injury settlement. However, there are always exceptions to the rule. Read on and find out more about taxes, personal injury settlements, and legal funding while waiting for your case to settle.

personal injury settlements

Compensation for physical injury is not taxable

There’s a general rule that says that the proceeds received from a personal injury claim are not taxable. Also, if you worry about the time and place your case was settled, you shouldn’t. It doesn’t matter if the case was settled before or after filing a personal injury lawsuit in court. The IRS and the state won’t tax you on the settlement or verdict proceeds in most cases.

Compensation for physical injury or physical sickness is tax-free. So the aforementioned personal injury damages that come from a personal injury or a physical sickness are not taxable.

When are settlements taxed?

There is always an exception to the general rule. When you suffer physical injuries in an accident you will be taxed for the damages related to a breach of contract. If the breach of contract caused your injuries and it is the basis of your lawsuit, then it is taxable.

Moreover, punitive damages are always taxable. Punitive damages or punishment against the defendant are rare but if you do receive this kind of damages, remember that you will need to pay tax.

Also, any interest you receive for the length of time that the case has been pending is subject to taxes. And emotional injury only will be subject to tax. For instance, if you file a claim for emotional distress or discrimination but with no physical injury, you will have to pay tax once you receive your settlement.

personal injury settlements

Pre-settlement funding

If you are in the midst of a personal injury lawsuit, it’s recommended that you consult your personal injury attorney and a tax professional about what awaits you after your case is settled.

While your lawsuit is still pending and you are struggling with your finances, Certified Legal Funding can help. We understand debt collectors do not care if you are injured and can’t work to pay your bills, so waiting until the end of the lawsuit may not be a possibility.

You don’t need to wait! You can apply for a pre-settlement cash advance and get your life back on track. The advances we offer can be used for anything you want and you only give back the money if you win your case.

Resist the temptation to accept unreasonably low settlement just because you need money because legal funding is the answer. For more information on legal funding and need legal advice, give us a call on toll-free number: 800 922-7439.


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