Do you have to pay taxes on Personal Injury Mental Anguish settlement money?

Suwanee Personal Injury Lawyer

Nope.

Suwanee Personal Injury Lawyer

Settlements for physical injury or illness are not taxable. A claim purely for mental anguish does NOT meet the physical injury or illness test and would therefore be taxable. However if the mental anguish portion is stated separately but was based upon a physical injury or illness, the courts have held that it is not taxable and is merely part of the physical injury payout.

Edit: **** entails a physical injury component even if minimal compared to the mental anguish. I would argue that it would be a settlement for physical injury, not purely mental anguish. If you are in a position to negotiate a settlement on such a matter, I’d strongly suggest that your attorney insist on it being worded for the physical injury resulting from the attack. At that point the mental anguish component is ancillary to the physical injury component and is therefore not taxable. Also, avoid any punitive damage component if at all possible since punitive damages are fully taxable. A smart attorney would fold any punitive component into the basic physical injury award to avoid taxation on it.

Suwanee Personal Injury Lawyer

Taxable.

Suwanee Personal Injury Lawyer

Was this related to a job or employment situation? A lawsuit from a former employer could be taxable income.

Suwanee Personal Injury Lawyer

I think this has been run through the supreme court under a name MURPHY (don’t hold me to the name) and it was decided that under law as currently written that physical only was non-taxable. Mental anguish was not physical so it was taxable.

Suwanee Personal Injury Lawyer

Did you get some type of 1099 form for it? If you didn’t, not taxable.