St Louis personal injury Specialists
Are lawsuit settlements taxable? Buchanan, Williams & O’Brien can shed light on tax obligations. Call us today for more information.
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Are Personal Injury Settlements Taxable?
In general, the IRS will not tax settlement money received for physical injuries or physical sickness unless you previously deducted medical costs related to that physical injury. Emotional distress damages arising from a physical injury or physical sickness is treated like payments for physical injury. If not related to a physical injury, a settlement payment for emotional distress is considered income.
Your personal injury case may also include claims for non-physical injuries. Any settlement proceeds related to the following can be taxed:
Lost wages or lost profits: Damages for lost wages are considered taxable wages and are subject to normal income taxes. Similarly, an award for lost profits is considered business income.
Loss in value of property: Loss in value of property may be considered income and subject to tax if the settlement amounts paid exceed the property’s adjusted basis.
Interest: Any interest paid on a settlement is generally considered taxable.
Attorney fees: Legal fees paid can also affect your taxable amount. In some cases, an award of attorneys’ fees may be considered income.
Confused about personal injury in St Louis? We are here to answer your questions.
Are There State-Specific Tax Rules and Considerations?
Most states follow federal guidelines on the taxability of lawsuit settlements. However, it is important to understand the implications of your state’s tax code on your legal settlement.
Compensatory damages: Most states, including Missouri, do not tax compensatory damages
Punitive damages: Some states, like the IRS, consider punitive damages to be taxable income.
Interest: State rules can vary on the taxation of interest earned on lawsuit judgments.
Legal fees: The treatment of an award of attorneys’ fees can vary. While they are often not taxable, some states may have specific rules or exceptions.
Structured settlements: States might have differing rules on the tax treatment of structured settlements. Some states follow federal guidelines, while others have their own regulations.
Income tax rate: Your state’s income tax rate can influence the tax burden on lawsuit settlements. States with higher income tax rates may have higher tax liability for settlements.
Deductions: States may offer unique exemptions or deductions that can affect the taxable amount.
Legal precedent: State court decisions can influence the taxes due on a legal settlement. Precedents set by the courts play a role in shaping the tax landscape for settlements.
Given the variability in tax laws among the states, involving an attorney in your settlement negotiations is advisable. The experienced attorneys at Buchanan, Williams & O’Brien can offer guidance on how federal and Missouri tax laws will affect your tax obligations.
The Team at Buchanan, Williams & O’Brien, P.C. Can Help
Professional legal counsel is vital for navigating lawsuit settlements and tax implications. Let the experienced personal injury attorneys at Buchanan, Williams & O’Brien help.
We offer personalized guidance to help you make informed decisions throughout settlement negotiations. Our attorneys can make a significant difference in the outcome of your lawsuit settlement. Additionally, we will ensure compliance with applicable tax laws.
Every lawsuit settlement is distinct. We offer tailored advice and assistance with your personal injury case settlement. From slip and fall claims to the truck accident settlement process in St. Louis, we help our clients understand every aspect of their settlement.
Contact us today to schedule a consultation.