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West Palm Beach Business & Personal Injury Attorney
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When is a Settlement Taxable?


If you have suffered injuries in an accident and you are trying to get a settlement for your injuries, one of the questions people in this situation often ask is what the tax implications are for the compensation that they win as a result of their case. Is the settlement from a personal injury case considered a type of taxable income? Could my injury cost me even more money when I go to file my annual taxes? While in most cases the answer is no, the tax implications of a personal injury settlement can be a bit more complicated.

What is Tax Free?

While the compensation for a personal injury settlement varies from case to case, there are a few types of compensation that you can expect to be exempt from Florida taxes. These include the following:

  • Compensation for physical sickness or physical injuries
  • Compensation for medical costs. If you deduct your medical costs and are later reimbursed for these costs through your settlement, you are required to report the amount that was previously deducted as income when you file for your return for that year in which you received money.
  • Compensation for lost income due to your physical injuries.

What Settlements Can Be Taxed?

In most cases in Florida, a settlement will not be taxed. However, there are certain types of damages that could be considered taxable. These include the following:

  • Punitive Damages – These are damages that go beyond your initial loss. Because of this, they are considered income and will be taxed.
  • Interest – Like punitive damages, interest is considered a type of income above your normal damages. They will be considered taxable by the IRS.
  • Lost Wages – Because wages are considered part of your income, if you recoup these as part of your settlement, the IRS will treat this money as a type of income that is taxable.
  • Emotional Distress – If you suffer from emotional distress that is directly related to your injury, these funds will not be considered taxable income. However, if the emotional distress is not directly correlated to your injuries, it will be considered taxable by the IRS.
  • Invasion of Privacy – Because invasion of privacy settlements are not directly related to the costs you incur due to your injuries; this means they are a punitive type of damage and will be taxable.
  • Discrimination – These damages often result in lost wages. This makes it a type of compensatory income and is therefore taxable.
  • Harassment – This is only taxed if it is in relation to the injuries that occurred. However, if the harassment caused emotional distress or injuries, it may not be taxable. Your attorney can help you understand which would apply in your case.
  • Wrongful Termination – This falls under the category of lost wages and will be taxed.
  • Defamation – These damages are normally part of lost income and therefore are usually considered a taxable type of compensation.

Ensure a Non-Taxable Settlement

If you have filed a variety of claims against someone who injured you, there is a chance that at least one of these claims will have taxable compensation. Having the West Palm Beach personal injury attorneys at Pike & Lustig, LLP assist you with your claims and compensation can help you ensure that you not only get the compensation that you are entitled to, but that your settlement has as few tax implications as possible. Contact us today to schedule a consultation


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