You might be wondering whether you need to claim money from a personal injury settlement as income on your taxes. Settlement money is tax deductible under certain circumstances, which means that you can possibly keep every penny of the money that you receive.
Is Money Received for a Personal Injury Tax Deductible?
You may not have to pay taxes to the IRS on the money you received from your personal injury settlement if you meet certain criteria. Not having to pay taxes from your settlement to the IRS will make it possible for you to use more of the money to cover your medical care, property damages, and other losses. You can consult with one of the many Las Vegas injury attorneys to learn if you must pay taxes on your settlement.
Injury and Illness
If you receive money to compensate for an injury or illness, the funds are not taxable unless you previously claimed deductions for related medical expenses that you had to pay out of pocket. Any taxable settlement money will need to be reported on your 1040 form as “Other Income” on line 21.
Any money you receive to compensate for emotional distress related to your personal injury case is also tax deductible under most circumstances. However, if money was paid for emotional distress that was not related to your personal injury, you will need to claim these funds as income. This money should be noted as “Other Income” on line 21 on your 1040 tax form.
You might be awarded punitive damages if the actions of the party who caused your personal injury were particularly egregious. This money must always be reported as income to the IRS.