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Taxes and Your Personal Injury Settlement


If you have recently won a settlement after a car accident, you might wonder how taxes factor in. While most settlements don’t require you to pay taxes, it really depends on the specific nature of your case and judgment. Continue reading this article for more information on taxes, your settlement and personal injury settlement loans.

The Tax Code and My Settlement

The Internal Revenue Service (or IRS) mentions taxability of settlements in section 1.104-1 Compensation for injuries or sickness.

The key takeaways are that gross income is not affected by most of the proceeds from your personal injury settlement. The main exceptions are for lost wages and punitive damages. Compensation from your personal injury claim for lost wages are treated as wages earned for taxation purposes. Interestingly, punitive damages are also taxable. Punitive damages should be recorded as “Other Income” for tax purposes.

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Medical Damages

A majority of settlements cover “compensatory damages” and “general damages.” These damages compensate the plaintiff for medical expenses, lost wages and pain and suffering caused by the injuries.

Settlements typically comprise only of compensatory and general damages, which are usually not subject to taxes. This is because these settlements or judgments are meant to reimburse you for out-of-pocket losses.

Vehicle and Property Damages

If your settlement includes compensation towards vehicle repair resulting from a car accident, it is not taxable. This includes any coverage for the costs of repairs as well as rental car reimbursement.

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Lost Income

If your settlement or judgement covers compensation for lost income, it is generally subject to income tax. This is because your original income would have been taxable if you did not experience lost income, which means that any replacement of lost income should also be taxable.

Punitive Damages

Punitive damages, or punishment against the defendant, are rare and include personal injury damages as a result of the defendant’s particularly outrageous or egregious behavior. If you happen to receive punitive damages in your personal injury case, note that they are almost always taxable.

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Uplift Legal Funding

If you are in the midst of a personal injury lawsuit, consult your lawyer and a tax professional to learn about the taxability of your settlement or judgment.

Uplift Legal Funding is here to offer financial support to personal injury plaintiffs so that they are able to go up against the defendant. We essentially claim a part of the plaintiff’s lawsuit winnings, and are only able to collect if the plaintiff actually wins the case.

Uplift Legal Funding prides ourselves on reliable customer service, and we are readily available to guide you through our three step application process. With us, plaintiffs will experience complete transparency and fast cash transfer.

Uplift Legal Funding helps with financial assistance for plaintiffs nationwide. It is time to take control of your legal journey. Learn more today by calling us at (800) 385-3660 or applying online.

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