Do I have to report tax-free money from a settlement of a personal injury claim?

Asked over 2 years ago - Boise, ID

I'm going to receive some money in a settlement. Will I have to report this when paying my taxes?

Attorney answers (4)

  1. Kurt D. Holzer

    Contributor Level 10

    2

    Lawyers agree

    Answered . If the recovery is on account of personal physical injury the answer is no. If the recovery is for someting above and beyond or different than that the answer is maybe.

  2. John Gus Zgourides

    Contributor Level 17

    2

    Lawyers agree

    Answered . Generally personal injury settlements are not taxable by the IRS. However, some portions of a recovery may be taxable. For instance, if you agree to confidentiality as a term of your deal, that could create a taxable event if it is not worded carefully. Further, if a portion of your recovery is apportioned for lost wages, that could also be taxable by the IRS. You must also seek advice about Idaho tax law. Be sure to advise your tax preparer about your settlement and follow their advice.

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  3. S. David Rosenthal Esquire

    Contributor Level 18

    1

    Lawyer agrees

    Answered . Keep in mind that I am not a tax attorney, however, my understanding of the IRS position on this issue is that money paid to compensate for bodily injury is not taxable. I have never had an issue in California with the IRS trying to tax one of my client's personal injury recoveries.

    To be absolutely sure, I would suggest consulting a tax attorney and/or your personal injury attorney.

    Good luck.

  4. Lars A. Lundeen

    Pro

    Contributor Level 20

    Answered . Current federal regulations provide that recoveries from torts that involve personal injuries are exempt from taxation.

    Legal Disclaimer:

    If this information has been helpful, please indicate below.

    Mr. Lundeen is licensed to practice law in Florida and Vermont. The response herein is not legal advice and does not create an attorney/client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. Mr. Lundeen strongly advises the questioner to confer with an attorney in your state in order to ensure proper advice is received.

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