April 10th 2008
Personal Injury Money Damages are Not Taxable by the IRS – following a Settlement, Verdict, or Judgment in Washington
The tax man is coming! April 15th is fast approaching, meaning it is time to pay Uncle Sam his due. As a Kirkland Washington personal injury attorney I rarely wade into tax law issues. However, for all my Washington personal injury clients, there is one very important tax regulation that applies to personal injury lawsuit verdicts 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 include money (unless punitive damages – which aren’t available under Washington laws) received as the result of personal injury lawsuit /claim settlement, judgment, or verdict.
If you settled your car accident or other Washington injury accident case in the last tax year you will not have to pay taxes on it. You will probably have to report that you received a personal injury settlement or verdict, but no taxes will be charged against it. So when your accountant or tax software asks you about the amount received don’t worry, you won’t pay more taxes by telling the IRS about your injury settlement/verdict money.
The tax code 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.”
Ben Sansone of the Missouri Injury Law Blog had recent post on the same subject. If you live in Missouri you should definitely check out his blog, it is excellent.

