My Arizona Personal Injury Settlement, Is It Taxable?

Mesa Injury Attorneys Discuss The Tax Liability That Accompanies Personal Injury Settlements

This is information that you should know if you are currently going through an injury incident that may lead to a settlement.

After being injured in an accident, you’ll probably have several things to worry about- attending medical appointments, preparing your personal injury claim, catching up at work and around the house, etc. A car accident, slip and fall, dog bite, and any other type of injury can have a long-lasting impact on your entire life. The last thing you have probably stopped to worry about is the taxability of your personal injury award. Understanding if, and how much, of your settlement will be taxable could be vital to your financial planning for the future.

The vast majority- approximately 95%- of personal injury claims settle out of court. Unless special circumstances are present, you can probably expect the same in your case. If so, you will receive compensation shortly after signing your settlement agreement. Discuss your claim with an attorney, who will be able to give you an idea of your chances of going to trial. Some damages that are subject to taxation can only be collected at trial, not in a settlement.

Expert Mesa Injury Attorney Discussing The Tax Liability That Accompanies Personal Injury Settlements

Is My Personal Injury Settlement Taxable In Arizona?

In general, most of your personal injury settlement will NOT be taxable. The IRS will not usually be entitled to collect any of your proceeds from a personal injury lawsuit. However, there are exceptions to this. You should consult with a personal injury attorney in Mesa before filing your case so that you can probably strategize based on taxability.

What Is Taxable In An AZ Personal Injury Settlement?

In general, it is extremely difficult to collect in a personal injury suit for emotional damages alone. Except in rare cases, there typically must be some type of physical injury present for the plaintiff to be able to collect. In the rare cases where it is possible to collect for emotional distress damages without a physical injury, these awards will be subject to taxation.

You may receive an award against the defendant, but that doesn’t mean that they will pay up right away. Any amount left unpaid by the defendant will eventually begin accruing interest. All interest accrued on unpaid judgments will be subject to taxation. You can also be taxed for damages relating to your breach of contract of a settlement agreement.

Punitive damages are a unique type of damage that can only be awarded at trial. They can only be awarded at trial because they are specifically meant to punish the defendant’s conduct, and aren’t calculated using the plaintiff’s actual damages. The jury will award them based on what conduct they intend to punish, and what amount would actually be an effective punishment for the defendant. While this is extremely rare, punitive damages can actually result in a windfall for the plaintiff. These damages are taxable, so the plaintiff should prepare for the IRS to take a significant portion of punitive damages. The plaintiff will need to be able to clearly show which portion of the judgment was punitive, separate from the rest of the non-taxable part of the award.

What Is NOT Taxable In An AZ Personal Injury Settlement?

There are several common types of damages that can be collected in a personal injury settlement that are NOT taxable. Reimbursement for your medical expenses, including those that you expect to incur in the future, aren’t subject to taxation. Similarly, your lost wages, as well as earning potential you expect to lose in the future due to your injuries, aren’t taxable. Depending on your relationship status, you may be able to collect for loss of companionship or consortium, both of which aren’t taxable. If you are compensated for your pain and suffering due to the accident, this also won’t be subject to taxation. You may be entitled to other damages due to your injuries resulting from an accident. Contact a Mesa personal injury attorney in your area to learn more.

Do I Have To File My Settlement With The IRS?

In most cases, you actually don’t have to file your personal injury settlement with the IRS. This reduces your stress and responsibility after an accident and ensuing personal injury claim. There are only two requirements that must be met that eliminate the need to file your settlement with the IRS. First, your damages stem from a physical injury or illness. Second, you can’t have used itemized deductions on your previous taxes for the same illness or injury. If your case meets both of these requirements, you won’t have to report your settlement to the IRS.

Contact Our Arizona Accident Lawyers

Before worrying about the taxability of your settlement, you might want to first dedicate yourself to finding a high quality, low cost injury attorney. This can greatly impact the amount that may be taxable. Most personal injury attorneys will charge you on a “contingent” basis. This means that instead of taking payment from you at the beginning of your case, your attorney will take a set portion of your settlement or trial award. While the difference between attorneys’ contingency rates may sound small, this can end up meaning a difference of thousands of dollars for you. Our competitors take this opportunity to charge as high as 33% of your final award. Our Mesa Accident Lawyers understand just how important every dollar is while recovering from an accident, and instead charge a guaranteed 25% contingency fee. That means less of your award going towards legal fees, and more of it in your pocket.

Still Have Questions Regarding Your Arizona Injury Settlement?

Even if your accident was recent, it isn’t too early to start thinking about the tax implications of your personal injury award. This is just one of the many facets of a personal injury claim that you will need to consider along the way. You will also need to make sure your case is filed within the applicable statute of limitations, and meets all other jurisdictional requirements. You may be able to figure out these intricacies on your own with several hours of work and research, or you can leave it in the hands of a professional.

Another important factor to consider is that a Mesa personal injury attorney will be responsible for all communications regarding your case with opposing counsel, the courts, etc. When this is first filtered through your attorney, it reduces the chances that you make statements that could hurt the value of your claim. Your attorney will use the available evidence, as well as their knowledge and experience, to leverage you the highest settlement possible. To learn more about the benefits of filing your personal injury claim with a Mesa Injury Lawyer, schedule your free case evaluation with our firm today. Call (602) 600-6001 for a free consultation.


Mesa Injury Lawyer

1731 West Baseline Road Suite #103
Mesa, AZ 85202

Tel: 602-600-6001
Enail: [email protected]