Is money won in a medical lawsuit taxable?

Answer 1

I woudn't think so since it would be double taxation if you already paid the bills from your own money (i.e. salary that is taxed). Actually, isn't there an area where you can deduct medical expenses on your tax form anyway? I believe I saw it when I did my taxes. ADDITIONAL INFORMATION Provided for Informational Purposes only and not intended a advice from a tax professional. As with every tax question, the answer is much more complicated than a yes or no. The answer depends on what the proceeds from the "medical lawsuit" represent. Every medical lawsuit settlement or award may have some parts allocated to: compensatory damages for pain and suffering punitive damages due to intentional or grossly negligent actions if provided for under state laws. It is extremely rare for a negligence action to carry punitive damages. reimbursement of medical expenses loss of income for being out of work amounts needed for future rehabilitation treatments prejudgment interest post-judgment interest attorney's fees, and perhaps others as well. Regulations governing taxability of "medical lawsuit" recoveries are at Title 26 USCS Sections 104, 105 and 106. Section 104 states that gross income does not include: (2) the amount of any damages than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness. Compensatory damages for physical pain and suffering are not "income", because they are received on account of the injury or sickness and are therefore not taxable. Damages for emotional distress are taxable because they are not for physical injuries or sicknesses. Damages for wrongful death are also taxable. Punitive damages are taxable, because they do not compensate a person for injury or sickness. They are to punish or deter future intentional or grossly negligent acts. Reimbursement for medical expenses might be taxable if the person took a deduction for the amounts paid and then got reimbursed for them, otherwise they are not income. Loss of income from being out of work is taxable because it does not compensate for the injury or sickness. Had the injury not occurred, the person would have earned that income and that income would have been taxed as regular income. The fact that the person gets it later does not make it nontaxable On the other hand, if part of a loss of income award is for lost sick pay, then that part is not taxed. Amounts needed for future treatment may be taxed in part. They would be treated as reimbursement for medical expenses actually paid out in the future. Medical expense deductions have restrictions. If those restrictions are not met, they could be taxable. Also, if monies given for future treatment are not spent and if they do not have to be returned to the defendant, then they are considered income and are taxable. Prejudgment interest on the award is taxable, because this is not compensation for the injury or sickness itself. Post-judgment interest on the award is taxable for the same reason. Attorneys fees and costs are taxable. Essentially, if the proceeds compensate a person specifically for the injury itself, it is nontaxable. If it compensates anything else, even though it occurs as a result of a personal injury or sickness, then it is taxable. And, the IRS has the authority to review every settlement agreement to make sure that the gross amount of the award does not contain taxable items.

Answer 2

Yes, the money that a person recieves in a lawsuit is taxable unless it is stated otherwise by a government official. When a person reports their taxes for the year, there is a section for settlements they have recieved during the year.