Generally, money from a personal injury settlement is not taxable under Federal or State law.
This is because the law excludes from a taxpayer’s gross income money damages received as a result of physical injuries. So for example, money received for medical bills, prescription drugs, lost wages, and pain and suffering are not taxable because these damages flow directly from the personal injury. This will be the case whether the claim is settled before trial or whether an actual verdict is rendered.
It is important to note that damages awarded for emotional distress or mental distress must be the result of a physical injury in order to be tax free. Sometimes, like in employment discrimination cases, there is not physical injury, although emotional distress damages are given. In those situation, the award is more than likely going to be taxed.
On the other hand, punitive damages are almost always taxable. Punitive damages are awarded not to compensate the personal injury victim, but to punish the wrong doer. Because of this, the injury lawyer will almost always instruct the judge to have the verdict form represent what amount of the award is for compensatory damages, and what amount is for punitive damages.
Sometimes, a Court will award damages that include interest on the judgment. Often, after a successful verdict for the injured victim, the insurance company will appeal the award. In Georgia, cases can spend years going up and down on appeal. Interest on the judgment simply means that once the judgment is rendered, interest begins accruing until it is paid.
If you or a loved one have been injured, and you are not sure how your potential claim will affect your taxes, then please feel free to call and speak to an experienced Atlanta personal injury lawyer today.