The whole point of a personal injury award is to make you whole again after your accident, so isn’t this amount always non-taxable?
Not quite.
There are a few instances where your personal injury award may be taxable. If you are wondering whether your specific case will be taxed, consult a knowledgeable personal injury attorney. They will be able to tell you definitively what rules apply to your case.
Here’s a quick overview:
Losses caused by injury are non-taxable.
In order for your personal injury award to be non-taxable, your compensated losses must stem from a physical injury. This means that medical care you receive for these injuries will be covered. In addition, if you suffer mental trauma from your injuries, these rewards will also be considered non-taxable.
Other rewards are taxable.
If you are compensated for a loss that doesn’t directly stem from a physical injury, that compensation will likely be taxed. Examples include:
- Emotional distress that doesn’t originate in physical injury
- Punitive damages
- Any interest you’ve accumulated
Again, consult your attorney to find out if your personal injury compensation is taxable or not.