WA does not have a state income tax. So, no income is taxable in WA for natural persons.
As for the federal income tax, settlements from personal injuries are generally not taxable income. Presumably, the medical malpractice resulted in some sort of injury to the body. So, the portion of the settlement that is designated for personal injury should not be taxable income.
The settlement agreement likely has designations for the various components of the total settlement amount.
You likely have an attorney since most medical malpractice cases do not go very far without attorneys. Your attorney should be able to explain or have someone else explain the taxes to you.
It is not taxable because it is Washington State. There is no income tax, so your taxes would be limited to the sales tax on your purchases. Since you have more money, you may indirectly pay more taxes like this.
Under Federal Tax Law, compensation for physical injury is not taxable. However, there could be different portions for different things. Compensation for lost wages would be taxable. You need a tax attorney or a CPA to break this down for you based on the filed complaint, and settlement documents.
For the most part the settlements are not considered income by the IRS and, therefore, are not taxable. However, there are some exceptions that apply in certain situations. An example is that any part of the settlement that is designated as compensation for lost wages may be considered income and taxable. You should discuss the issue of taxation with your attorney and determine how it applies to your particular situation.
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