Do I Pay Taxes on My Injury Money?

by | Apr 22, 2022 | Allen A. Ritchie, Personal Injury |

Allen's Answers

 

Generally, you do not pay taxes on a personal injury settlement. Generally is the tricky part of that statement because sometimes you do.

Now, please don’t rely on me for tax advice. The rules seem to change often, and there are lawyers and accountants who specialize in this. I’ll give you a name or two if you want.

That said, here is my understanding from several decades of fighting for injury settlements. In an injury settlement, your compensation for medical bills, pain and suffering, property damage, and the like is not taxable because these things are not income. Remember, it is called “income tax,” not an “if you get money” tax. The money you receive is considered a reimbursement for something you lost.

However, according to the IRS, punitive damages (those ordered by the court to punish the person or company who hurt you) are considered income and are taxable.

Confusing? Hold on; there is more.

In Alabama, a wrongful death case (a case where a person dies) can only collect punitive damages. Yes, if you die, your family does not get any of the pain and suffering and other compensation. We are the only state with this restriction, so the IRS has made an exception for Alabama. Punitive damages in wrongful death cases in Alabama are not taxable.

This is just in Alabama; the government wants its share of those punitive damages in Florida and Mississippi. But you probably suspected that.

If you suffer from a personal injury like an auto/railroad wreck, wrongful death claim, or slip and fall, you can talk to us at the Law Firm of Eiland and Ritchie for free. We want to help you get back on your feet.

Also, join us on NBC 15 LawCall here in Mobile every Sunday night at 10:30, right after the news. We will take your calls live. We do like answering your questions. We also have lawyers standing by at our offices on Monday mornings.

Allen Ritchie

Mobile Personal Injury Attorney

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