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When it comes to making a claim for physical bodily damage, many 
people often wonder if the award received is subject to taxation. There 
are many elements that determine whether or not the IRS has any right to
 these winnings. A personal injury attorney can work closely with the 
court to help claimants get as much money free of tax, but there are 
some exceptions.<br />
Taxation of Personal Injury Claims<br />
In most 
cases, money received from a personal injury claim is not taxable. This 
rule applies to federal and state law, and it does not matter if the 
case was settled or if the money is the result of winning a lawsuit. Any
 money received from this type of situation is not counted as a 
taxpayer's gross income, whether it is used for medical expenses, as a 
source for lost income, pain and suffering, or paying legal fees. 
Whether the claim is a result of being hurt or illness, the IRS will not
 typically have a right to tax any money received.<br />
Possible Exceptions<br />
While
 money from a claim is not taxable, claimants will be taxed on any 
damages that are a result of a breach of contract that causes the 
infliction of pain. In addition, it is important to remember that only 
compensatory awards are non-taxable. Punitive awards are not. A personal
 injury attorney will request that the judge separate compensatory 
settlements from punitive damages so that the IRS will be able to easily
 discern what they can tax.<br />
If there is any interest accrued on a 
judgment, that interest amount is also taxable. In many states, the 
court will add the interest to the verdict for the amount of time the 
case has been waiting. For instance, if a claimant receives a judgment, 
but the defendant appeals and the case is not settled until one year 
later, interest will accrue on the award for that year. The IRS will tax
 this interest.<br />
Questions About Emotional Injury<br />
One common 
misconception is that settlements for emotional injury are also taxed. 
This is not the case. Any claims for emotional distress will be subject 
to taxation unless any evidence of physical pain can be proven.<br />
When There Are Two Claims<br />
In
 some cases, a claimant may have two judgments against a defendant. In 
this case, a personal injury attorney will have to ensure that the judge
 separates the award properly. In the settlement, it is crucial to 
ensure that it is stated very clearly which part of the settlement 
relates to physical bodily damage and which does not. This could include
 money meant for other forms of distress or property damage.<br />
When 
someone wins a settlement, it is important to remember that while it is 
generally non-taxable, the IRS can always challenge a claim. If this 
occurs, it is important to work closely with a personal injury attorney 
and a tax accountant to ensure everything is handled properly.
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