Taxes and Personal Injury Settlements

by Doug Zanes | Last Updated: April 9, 2015

Tax Season is coming to a close by April 15th so if you need to file your taxes, hurry up and see your local accountant for help!

And while you see them you can ask them a very common question that our personal injury attorneys often get here at Zanes (and likely other personal injury law firms as well).

The question is this: If I was injured in a car accident in Arizona, are there tax consequences of money received from a personal injury settlement….

In other words, Do I have to pay taxes on the the money I received from my injury settlement (due to my car accident)?

The short answer: Maybe…

The long answer: Before we delve into the long answer, please make note too check and verify this question with your local accountant or the people helping you with your taxes. We here at Zanes have attorneys (albeit very knowledge ones) they are NOT accountants… nor are they tax attorneys.

Now, the long answer: It is pretty straightforward – if you received monetary compensation for your case resolution, whether it was from a trial, a settlement or an arbitration, and a portion of that money was specifically delineated for Wage Loss, then it could be taxable.

The reason being that if you were able to work and receive that money through your employment, then that money would have been taxable. Since you are receiving that money through your settlement instead (if delineated as such), then it would be taxed as such.

Our managing attorney speaks on this tax question and emphasizes that most cases that the firm has worked on have never been a part of a case resolution that has specifically qualified for wage loss delineation but it IS possible.

In fact, Mr. Zanes gives a great example on this using a jury trial: If there is a jury trial (involving a personal injury case) and the jury is presented with information regarding lost wages and that same jury comes back with a verdict awarding money specific to the wages lost, this could be taxable compensation.

We hope this information has been helpful (especially for this time of the year) and we encourage you to see you accountant for a complete and detailed answers on all your tax questions.

For an audio version of this content, listen to our talk show episode on this topic!

Doug Zanes
Doug Zanes: Founding Attorney Raised in Douglas, Arizona, and went to college at Arizona State University and graduated from law school at St. Mary’s University School of Law in Texas. Doug began practicing law in Phoenix Arizona in 1997.
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