Uncle Sam wants your settlement - New Hampshire Car Accident Lawyers - Liberty Legal Services

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Uncle Sam wants your settlement

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Uncle Sam Is After Your Settlement

So you were involved in a personal injury lawsuit, and your NH personal injury attorney was able to negotiate a significant settlement on your behalf.

How much is the IRS entitled to receive? After all, they were not the ones who were injured. They did not have to stay in the hospital. They didn’t require months of therapy to recover from their injuries. They didn’t have to replace their automobile, and they did not spend months contending with attorneys and insurance providers.

So how much are they going to get?

Ideally, the answer is nothing.

Any type of monetary compensation that you receive for personal injury damages, which have resulted from physical injury, are usually not classified as taxable by the IRS. Regardless of whether you received this compensation through a pretrial settlement, or were awarded the compensation after a trial, it is irrelevant. The federal government cannot legally tax the proceeds from the monetary amount you were awarded as a direct result of your personal injury lawsuit. The same holds true for state governments, and they cannot tax your award.

Federal tax laws have created allowances for monetary amounts received as a direct result of personal physical sickness or injury and allow them to be excluded (for tax purposes) from an individual’s gross income.

Simply put, the monetary compensation you receive to make you whole (e.g. medical bills, lost wages, loss of consortium, pain and suffering, and lawyer’s fees) are not classified as taxable, so long as they have been awarded as a result of personal physical sickness or injury. (An example of sickness would be an individual who develops mesothelioma as a result of being exposed to asbestos.)

This is the good news…

Breach of Contract

If your injuries resulted from a breach of contract, or if you chose to file a breach of contract claim in conjunction with your personal injury claim, then any amount awarded pursuant to the breach of contract are classified as taxable. For example, if you voluntarily entered into a contract for a sightseeing tour and were injured on the tour, your NH personal injury lawyer could file a negligence claim and a breach of contract claim, wherein your injuries resulted from some component of your agreement being breached. Any amount that was awarded because of the breach of contract would be taxable at the end of the year.

Punitive Damages

Moreover, punitive damages are also taxable. If an award is received after a trial and punitive damages were requested, the verdict would be divided to show which amount is for compensatory damages and which amount is for punitive damages.


Interest on awards is also taxable. The initial filing of a lawsuit is only the first step in a lengthy journey. If your complaint was filed today, and the trial began a year from today, your judgement would more than likely include an amount of interest for the period of time between when you initially filed the suit and the judgement was awarded. If the defendant chose to file an appeal and did not end up paying the judgement until two years later, three years of interest would accumulate – all of which is classified as taxable.

Emotional Injury or Emotional Distress

Claims that are filed specifically for emotional injury or emotional distress are taxable, unless an element of physical injury can also be proved. For example, if an employee were to file a sexual harassment claim at their place of employment, the damages would be considered emotional in nature, and the award would be taxable.

In these types of cases, it is highly beneficial for you to have an experienced NH personal injury lawyer representing your interests. They are skilled in negotiating adequate settlements and documenting agreements in order to ensure that each client pays the lowest amount of taxes possible on their settlement. A settlement agreement should explicitly state which portion of the award is for physical injury and which amounts are for other claims. The same holds true for jury awards or court verdicts. The final award should clearly spell out which dollar is going towards what.

If you believe that you have a personal injury claim in the state of New Hampshire, ensure that you represented by the most skilled and experienced personal injury lawyers available. Contact our law offices today to schedule a free case review.



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Guest Monday, 18 June 2018