Are Georgia Personal Injury Settlements Taxable?
Most personal injury cases in Georgia are resolved through a negotiated settlement between the parties. For example, if you are injured in a car accident caused by a reckless driver, that driver (and their insurance company) will usually offer to settle your claims for a specified dollar amount. Such settlements are generally good for the accident victim as it ensures they receive compensation for their injuries without having to go through a lengthy trial.
But you may be wondering, “Do I have to pay income tax on a personal injury settlement?” As with many aspects of federal and state tax laws, the answer to that question will depend on several factors. But here is a broad overview of how the IRS treats personal injury settlements for income tax purposes.
Physical Injuries or Sickness
According to Section 104 of the Internal Revenue Code, proceeds from any settlement for “personal physical injuries or physical sickness” are generally not treated as taxable income. The main caveat here is that if you claimed an itemized deduction for any medical expenses incurred in relation to your accident, you may need to report part of your settlement proceeds as income. For example, if you took a Schedule A deduction for $2,000 in medical expenses related to your treatment following a car accident, and you subsequently settle your personal injury claim against the driver who caused the accident, you may need to report the prior $2,000 deduction as income on your subsequent income tax return.
Emotional Distress and Mental Anguish
A Georgia personal injury settlement may also cover an accident victim’s damages arising from their emotional distress or mental anguish. Any portion of a settlement covering such mental injuries is not considered taxable income by the IRS, provided they originated from a physical injury or physical sickness. For instance, if you received compensation for post-traumatic stress disorder but no physical injury, then you likely have to report that part of the settlement as income.
Punitive Damages and Interest
In some Georgia personal injury cases, particularly those that proceed to trial, a victim may seek punitive damages. These are damages unrelated to the victim’s injuries. Instead, they are meant to “send a message” that the defendant’s conduct was especially egregious or harmful. Since punitive damages are unrelated to the victim’s physical injuries or sickness, they are generally considered taxable income. Similarly, if an accident victim receives any interest on their personal injury settlement or judgment, that is also treated as taxable income.
Contact Hawkins Spizman Trial Lawyers Today
Tax implications are just one of many legal issues you need to consider when pursuing a personal injury claim in Georgia. Our Alpharetta personal injury lawyers can advise you on your rights and responsibilities under the law. Contact Hawkins Spizman Trial Lawyers today. We serve clients throughout Georgia including Atlanta, Dunwoody, Alpharetta, Cobb County, Fulton County, Gwinnett County, Johns Creek and Sandy Springs.
Source:
irs.gov/pub/irs-pdf/p4345.pdf
