Personal Injury Money Damages Recovered are Not Taxable by IRS - Whether by Verdict, Settlement, or Judgment - Unless Punitive Damages
April 15th is rapidly approaching, meaning it is time to pay up to Uncle Sam. As a St Louis Missouri personal injury attorney I very rarely delve into tax law and issues, I save that for the lawyers who spend most of their lives in a library and behind their desks.
However, for all my Missouri and Illinois personal injury clients, there is one very important tax regulation that applies to personal injury lawsuit verdict or settlement money. If you are the injured victim or family member that recovers money as the result of a personal injury lawsuit or claim then the money received is not taxed. Under Federal Treasury Regulation § 104(a)(2) Gross Income (potentially taxable income) does not money (unless punitive damages) received as the result of a personal injury lawsuit settlement, judgement, or verdict.
The section reads specifically: "Section 104(a)(2) excludes from gross income the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness. The term “damages received (whether by suit or agreement)” means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution."
