Winning your lawsuit might feel like the end of a long, painful experience. You’ve been injured, you’ve had to fight for your damages, and now you’ve finally gotten the compensation you need to recover. But once you have that settlement, how much of it will actually be yours?

It’s not a fun thought, but you might already be wondering, “Are lawsuit settlements taxable?” Unfortunately, you could lose part of your settlement to taxes, so don’t spend it all just yet. Certain types of compensation may be taxed, so you’ll need to consider what you’ll be left with before your case is truly over.  

What Kinds of Lawsuit Settlements Can Be Taxed?

Many of the damages you’ve received may be taxable. It’s unfortunate, but in many cases, you might be unable to keep the full amount you and your attorney have fought so hard for.

This is especially true of lost wages. For example, let’s say that you were discriminated against and lost your job because of it, and you filed a lawsuit and won. Your settlement should include the wages you lost, but because those are income, you’ll more than likely need to include them in your taxable income.

Punitive damages can also be taxed. These damages weren’t meant to compensate you for your injuries, but were instead used to punish the other party for especially serious negligence or dangerous actions. This is why it’s important that a judge or jury clearly separates the punitive damages amount from the compensatory damages amount in a verdict.

Additionally, if you received interest on your injury compensation because it was delayed by an appeal or other issue, that interest may be taxable.

What Lawsuit Settlements Are Protected?

Fortunately, some types of settlements are protected from being taxed. Generally, if your damages are meant to compensate you for physical injury or illness, you should be able to keep your entire settlement. This includes some non-economic damages, such as emotional trauma, as long as they were due to the injury.

Unfortunately, if your claim only listed emotional damages, you may have to pay taxes on your settlement. Those non-economic damages will still be taxed if they didn’t come from a physical injury or illness, so you’ll need to look closely at your settlement and how much you’ll need to set aside for taxes.  

Understanding the Tax Consequences of Your Case

When you’re injured in an accident, you might not be thinking about whether your lawsuit settlement will be taxable, but it’s important to consider this before you get an unpleasant surprise.

If you’re not sure how to calculate the impact of taxes on your settlement, consider speaking to a lawyer from Craig Swapp & Associates. We can help you win the compensation you’re owed. Then, we can help you understand what parts of your settlement can be taxed and what won’t be.

If you’re dealing with a lawsuit and you need to know more about the tax consequences, set up an appointment with an attorney by calling 1-800-404-9000 or completing the form below.

Written By: Ryan Swapp     Legal Review By: Craig Swapp