Is a medical mal practice settlement taxable? I realize the portion for lost wages may be, but what about the portion for pain and suffering?
You are right to note the general distinction between a recovery for wages and a recovery for general damages or pain and suffering. A wage recovery is often taxable, but generally not in cases arising from personal injury. It sounds like your case would be such a circumstance, and so even any wage recovery would probably not be taxable. Recovery for pain and suffering is also not taxable, and your recovery for past and future medical expenses is generally exempt from taxation, too. Note that any recovery of interest is typically taxable, as may be any deductions that you previously took for past payments you made for related medical care (among other possibilities).
Settlements are cleaner in some ways, in that there may not be specific breakdowns of what amount of settlement is given for what measure of recovery. You should consult directly with your lawyer about these issues, or also consult a CPA or other tax professional. This answer is not meant to constitute specific tax advice, nor should you rely on this answer for anything other than a broad explanation of general rules. There are various wrinkles to these general rules that can apply in particular circumstances, and specific advice from a lawyer or tax professional can help you sort that out. Good luck!
Benjamin Nivison is an attorney licensed to practice law in Washington State. This communication does not create an attorney-client relationship between you and Mr. Nivison, nor does it constitute specific advice for your particular legal matter. The information provided in this communication is for general reference and informational purposes only, and therefore should not be relied on as legal advice. Legal issues are by their nature complex, and any person with a legal question should fully consult with a qualified attorney.
Personal Injury Lawyer
No, not under current IRS rules.
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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.
This ans. does not create an attorney/client relationship.
Personal Injury Lawyer
No, as my friend Kevin has stated. However, if the defendant requests confidentiality, then a portion of the settlement can be taxable that is attributable to the value of the confidentiality. The IRS has for the last ten years taken this position, so if you do agree to confidentiality, make sure you allocate in the settlement agreement a definite amount for confidentiality so you can point to that as the taxable portion attributable to the confidentiality, and prevent the IRS from deciding on their own what they think it is worth, and how much tax would be owed. If you google the old Dennis Rodman case on this issue it lays it all out for you. Moral of the story, make them pay more.if they want to keep a med mal settlement confidential.