If you make it through what can sometimes become a long and challenging legal process and are finally set to receive much-needed compensation for your medical malpractice case, you'll likely feel elated and relieved when the settlement funds finally arrive. But before you run out and spend it all to pay accumulated bills or other expenses, it's important to realize that a portion of your settlement may belong to Uncle Sam. Talking to an experienced personal injury attorney can help clarify your obligations to the IRS.
What is and is not taxable in medical malpractice lawsuit settlements depends on what, specifically, the funds have been designated to pay for. In general, the portion of a settlement designed to compensate you for what you already spent for medical care for physical injuries is not taxable. Other elements of a settlement are, however, taxable, including:
- Lost wages
- Punitive damages
- Medical expenses if you've already deducted them on a previous tax return
- Interest on an award accumulated during the time your case was pending
- Interest on an award accumulated during the time a defendant delayed payment
In other words, any portion of your settlement that could be considered to be income that is not directly related to medical expense reimbursement is probably taxable.
What's Not Taxable
Settlement funds that are designated for physical injuries and certain treatments for emotional distress are not considered to be taxable. Funds designated as compensation for pain and suffering arising from emotional distress, however, are taxable. If you've already deducted medical expenses for a given year on a previous tax return, however, those medical expenses are taxable.
Know The Tax Implications Of Your Settlement
At Rosenberg, Minc, Falkoff & Wolff, LLP, our lawyers can provide perspective about the likely tax implications of a potential settlement. Each case is different, and so it is important to get information specific to your situation. For a free initial evaluation of your case, call our New York office at 212-863-9101 local or 866-516-5887 toll free, or submit information to our online form to tell us more about your situation.