Are Personal Injury Attorney’s Fees Deductible From Your Taxes?

There is no denying the complexity that comes with U.S. tax laws. The government expects to take their share of your income each year. It is critical that, when you file your taxes, they are correct and up to date. However, if you have been in an accident where you were injured and received a personal injury settlement, you may be unaware of how the government will treat your settlement money. As such, you may also be concerned that Uncle Sam will have his hand out for a portion of your settlement at tax time.

Working with a tax professional can be advantageous if you aren’t sure how to do your taxes and finish them so they are sent in on time. In general, though, having a basic understanding of how the government looks at injury settlements and where attorney’s fees fit can take some of the mystery out of everything and provide greater peace of mind.

Paying Taxes on Personal Injury Settlements

Americans pay both state taxes and federal taxes. Residents of Florida do not have state income tax. Federal tax laws do not consider certain damages that were paid out in a personal injury settlement taxable, but they may be for others. 

The damages that are usually not taxable in a personal injury settlement

• Costs of medical care that was needed for injuries
• Pain and suffering compensation that resulted from injuries
• Income that was lost as a result of an inability to work because of injuries
• Compensation for the emotional distress suffered as a result of injuries

Damages that may be taxed in a personal injury settlement:

• Punitive damages
• Missed income for reasons unrelated to the injury
• Interest earned on money from a settlement
• Compensation for emotional distress that was unrelated to injuries
• Deductions that were filed for medical expenses that were later reimbursed

Attorney Fees and Taxes

Usually, personal injury attorneys work on a contingency basis. What this means is that they only get paid if they win their case for their client. When this happens and a settlement check is released, the personal injury attorney will take a portion of the settlement as payment. Attorneys typically explain their fees and the percentage they assume from a settlement to prospective clients before they begin a working relationship so clients know ahead of time. The contingency model can be advantageous because it allows anyone who is hurt in an accident to have legal representation regardless of their income.

When it comes to taxes, you are not taxed on the fees that are paid to your attorney. However, attorney’s fees cannot be deducted. 

Call Fulgencio Law Today

While some damages are not taxable because they are not considered income, other damages may be taxable in a personal injury settlement. An attorney’s payment comes from successful cases that they represent, which secure a settlement. Personal injury claimants are not taxed on attorney’s fees, but attorneys’ fees are not deductible from taxes.

Call a Tampa personal injury attorney at Fulgencio Law at (813) 463-0123 to have your case evaluated during a free consultation.