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Settling a personal injury claim is always a good feeling for both the client and the lawyer. As the injured party, being able to put a stressful incident behind you knowing you are receiving a fair financial settlement is a relief. As a personal injury attorney in Memphis, our clients often ask us the same question when they are signing the documents to receive his or her settlement: “Please tell me I don’t have to pay taxes on this money?”
Do You Have to Pay Taxes on Money You Receive From a Settlement?
The basic and short answer to this question is no. You normally do not have to pay taxes on any settlement related to a legal claim involving physical injury. The tax laws have changed in the past decade to exclude some particular settlements from being tax-free, but the general rule of not paying taxes on claims involving physical injuries remains.
For instance, if you received a $50,000 settlement for injuries sustained in an auto accident, you will not need to report this money on your personal tax return. One of the exceptions to the rule is when a settlement is based on a claim that only involved emotional distress. Because this type of claim is not based on physical injuries, such a settlement could be taxed by the IRS.
Claims That Are Taxable
Some settlements can involve claims of both emotional distress and physical injuries. It will be up to your lawyer to draft language in the settlement agreement detailing how any emotional distress is directly related to the physical injuries sustained in the accident and is therefore not taxable.
Some types of claims that are taxable if monetarily settled include:
- Wrongful termination
- Settlements involving punitive damages
How The Chiozza Law Firm Can Help
Before you settle a legal claim it is advisable that you speak with an experienced attorney at The Chiozza Law Firm who has negotiated settlements in all areas of the law on behalf of our clients.
Our attorneys understand the claims process and will do everything we can to ensure a fair settlement, including the examination and handling of any potential tax issues. If you have a medical malpractice claim, suffered a personal injury, were arrested in Memphis, or were merely given a speeding ticket in Shelby County we are always here to help.
We are confident that if you give us a call at 901-526-9494 to discuss your potential claim or legal issue we know you will like what we have to say. For emergencies please email attorney Brian Chiozza, for assistance.
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