A person is never truly “made whole” after being injured in a vehicle collision. Pain, Suffering, Mental Stress, Medical Costs, Lost Wages, Lost Time, Lost Memories . . .
Having experienced Personal Injury Attorneys like Althauser Rayan Abbarno with you after your injury AND before your settlement can save you time, stress, and money. A common question before settlement or trial, is whether the compensation is taxable. It Depends!
For a Free Consultation in Centralia or Olympia call (360) 754-5844 or visit CentraliaLaw.com.
You may have questioned whether proceeds from settlement of a lawsuit is taxable income. Whether you must include the settlement proceeds in your income depends on all the facts and circumstances in your case. Althauser Rayan Abbarno attorneys can help!
Many settlement payments consist of multiple elements that have been allocated by the parties. For example, an agreement may include allocations to back pay, emotional distress, and attorneys’ fees. Generally, the IRS will not disturb an allocation if it is consistent with the substance of the settled claims.
Personal Physical Injuries
If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income. BUT
If you receive a settlement for personal physical injuries or physical sickness, you must
include in income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to the extent the deduction(s) provided a tax benefit.
If part of the proceeds is for medical expenses you paid was more than a year ago, you must allocate on a pro rata basis the part of the proceeds for medical expenses to each of the years you paid medical expenses.
Emotional Distress or Mental Anguish
The proceeds you receive for emotional distress or mental anguish originating from a personal physical injury or physical sickness are treated the same as proceeds received for Personal physical injuries or physical sickness above. BUT
If the proceeds you receive for emotional distress or mental anguish do not originate from a personal physical injury or physical sickness, you must include them in your income.
However, the amount you must include is reduced by: (1) amounts paid for medical expenses attributable to emotional distress or mental anguish not previously deducted and (2) previously deducted medical expenses for such distress and anguish that did not provide a tax benefit.
Contact Althauser Rayan Abbarno in Centralia or Olympia
For a FREE injury consultation in Olympia or Centralia, call Althauser Rayan Abbarno at (360) 736-1301.