Are the Proceeds From My Personal Injury Case Taxable?

As a personal injury lawyer at Allen, Allen, Allen, and Allen I have had the privilege and opportunity to represent hundreds of individuals who were injured through no fault of their own. While I look forward to seeing the progress that my clients make on their road to recovery and I certainly enjoy getting to know their family members and loved ones, my favorite part of the attorney-client relationship is hearing about my client’s plans for the future.

Although financial compensation for bodily injury, pain and suffering, disfigurement or deformity, and medical expenses not previously itemized and deducted are exempt from taxation, compensation for lost wages incurred in the past and those reasonably anticipated in the future are taxable according to the Internal Revenue Service.

My clients have been able to buy their first homes, put their children through college, and take vacations they’ve always dreamed about.  Although they would not trade those opportunities for the pain and suffering they were forced to endure through someone else’s negligence, we all recognize that bad things can happen to good people, and full and fair financial compensation is the only practical remedy available under Virginia law to those injured through no fault of their own.

While I am certainly not a financial advisor, it is important to know that the proceeds of a personal injury recovery are generally not taxable. Unless you claimed itemized deductions for medical expenses incurred as a result the incident that gave rise to your injuries in prior years, the law does not require that you include your personal injury recovery in your earned income calculation.

Pursuant to Virginia law, and according to Virginia Model Jury Instruction 9.000, personal injury claimants are entitled to full and fair compensation for any bodily injuries sustained, physical pain and mental anguish, disfigurement or deformity, medical expenses, and lost earnings. During settlement negotiations, each of these component parts are evaluated in determining an appropriate total case value. At the end of the personal injury process, a single check is issued by the insurance carrier and a proceeds check is thereafter delivered to the client.

Although financial compensation for bodily injury, pain and suffering, disfigurement or deformity, and medical expenses not previously itemized and deducted are exempt from taxation, compensation for lost wages incurred in the past and those reasonably anticipated in the future are taxable according to the Internal Revenue Service.  Accordingly, keeping an eye on potential tax implications is essential when appropriately negotiating each of the individual elements that make up a comprehensive personal injury recovery.

The first priority for an auto insurance carrier is to protect their insured by securing a release from civil liability. Typically, once an aggregate settlement value for a claim is determined, the insurance carrier is not overly concerned with the specific financial breakdown within the total settlement amount. Accordingly, it can be in my client’s best interest to allocate more money from the settlement for pain and suffering, which is not considered taxable, and less money for wage loss, which is taxable.

At the law firm of Allen & Allen we are committed to providing the highest level of service for our clients. We pride ourselves on knowing the law and considering every detail throughout the course of our representation, including what happens to our clients after the checks are signed and the proceeds are delivered. If you or someone you know is injured through no fault of their own, call us for a free consultation.