Is a Legal Settlement Taxable in Florida?

A legal settlement can throw you for a loop when it comes time to do your taxes. Months ago, you received a check to cover your accident-related losses, including lost wages and medical bills. Now that tax time is here, do you owe the Internal Revenue Service (IRS) a chunk of what you won in a settlement? Whether or not your settlement is tax-free actually depends on the type of damages and how the IRS views them. Here are six things to know about settlements and taxes in Florida.

Curious if your legal settlement is taxable in Florida? Consult our Fort Lauderdale personal injury attorneys for expert guidance and clarity on your settlement’s tax implications today.

Physical Injuries and Illnesses Are Tax-Free

person figuring out taxes onlineIt will please accident victims to know that the IRS does not tax the amount of money you receive as compensation for physical injuries or illnesses. Damages you receive as reimbursement for your (as Section 104 of the federal tax code puts it) “observable bodily harm” are not taxable. Note that your injuries must be physical and visible in nature to be exempt from taxation.

Emotional Damages Are Taxable

Emotional distress and mental anguish generally fall into the taxable bracket as “income” according to the IRS, especially if the defendant issues an IRS Form 1099 for the settlement. Since emotional, mental, and psychological harms aren’t physical or visible, the IRS will generally deem them taxable types of income. There is a chance a plaintiff could fight this if the IRS taxes physical damages that result from emotional harm, such as a stress-induced ulcer. However, going up against the IRS can be difficult if the defendant gave you 1099.

Medical Bills Are Not Taxable

Medical bill compensation awards also pass under the IRS’s radar as nontaxable payments. The amount you receive to compensate you for your past and future accident-related medical costs are not part of your revenue for the year and therefore are not subject to taxation. No matter how much you earned in medical bill reimbursement, the IRS won’t tax it in most circumstances.

The IRS Will Tax Lost Wage Damages

Most payments for lost wages will face taxation. The IRS taxes lost wage payments because generally, the plaintiff recovers for full, gross lost wages, not after-tax wages. Therefore, to the IRS, you still need to pay taxes on this earned income. Most settlements for missed wages or lost profits will incur taxes.

Attorneys’ Fees Might Count as Part of Your Settlement

Be cautious of how the IRS will tax your settlement. If you paid your attorney on a contingency-fee basis, meaning you paid him or her out of the settlement you won, the IRS will include the attorney’s share as part of the settlement you earned. You will, therefore, have to pay taxes on the full amount of the settlement, prior to what you give your attorney. In other words, if you win $100,000 in a settlement but give your attorney $33,330, the IRS will tax the $100,000, not the $66,670 you kept.

You Can Save Money by Allocating Damages

There is a chance you could save on settlement taxes by allocating your damages. Most settlements will include several different types of damages, some taxed and some not. The plaintiff’s best interests often involve working with the defendant prior to reaching a settlement to agree upon taxation issues. There may be room to negotiate a different type of settlement award to help both sides on taxes. While an agreement between defendant and plaintiff won’t bind the IRS to act a certain way, it could help you save money.

Client Testimonials

“…the settlement I received was much higher than anticipated”

Fuchs was my car accident attorney and was very responsive from the first call. I had medical care the next day and the whole process was smooth. They handled everything with the insurance companies and coordinated all of the necessary medical information. It was a long process and in the end the settlement I received was much higher than anticipated I am more than happy and grateful for the outcome.

Sean O.
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“Not only did I get the medical attention I needed but I was compensated handsomely.”

It’s been a long bumpy road to recovery but with David and his office’s help, we finally got it done! Through a great network of professionals, David Fuchs makes a good experience out of what could’ve been quite a headache. Not only did I get the medical attention I needed but I was compensated handsomely. Thank you!

Giovanni G.
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“…they didn’t settle for anything and my boyfriend and I got what we deserved.”

I got in an accident in December 2021 when everyone was short staffed and insurance companies was not responsive. My boyfriend reached out to David F. and what a life changing experience. We had the pleasure of having all our worries handed to professional help. They worked diligently on our case, answered questions when asked and kept us updated on changes. More importantly they didn’t settle for anything and my boyfriend and I got what we deserved. I have dealt with others in the past but David got me the most according to the facts presented and never backed down when the insurance companies tried to make us settle for less. Thank you David, Jessica and the team for all your effort and hard work. I will recommend them to family and friends. [They’re] the best in town!

Sheila N.
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“Best lawyer in Broward County”
Evans P.
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“Mr. Fuchs and his staff were very helpful.”

I highly recommend Law offices of David Fuchs. Mr. Fuchs and his staff were very helpful. The case was handled in a timely manner and I was always informed if there were any changes or updates with my case.

Velouse G.
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“Mr. Fuchs is one of the hardest working attorneys that I know.”

Mr. Fuchs is one of the hardest working attorneys that I know. He is really good at what he does and puts 110% in you case. I have been using him for 19 years now and refer all my friends to him. I can leave him alone with my case and not call him all the time. I know he is working hard in my case. When he has any information he calls me and we go from there. There are not a lot of attorneys I can do that with! If you have any Personal Injuries please do call him. You won’t be disappointed!!

Libby E.
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“I would definitely refer to this firm as the go-to Florida personal injury gurus.”

At first I was afraid…I was petrified! I truly was! But the extensive knowledge, patience and professionalism I received brought me not only such peace and assurance that I was in good hands, but we got through my case like shining stars! David made sure I understood exactly what, when, where, why and [answered] whatever question I had. I would definitely refer to this firm as the go-to Florida personal injury gurus.

Donna M.
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“They have a wonderful team.”

…took care of my well-being [and were] very informative about my situation. [T]hey were on the ball when it came down to settling…I highly recommend David.

Nicholas G.
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“My experience with David Fuchs was awesome.”

I got a really good return… thank you David Fuchs and staff for being so helpful and working so hard to help us, you are appreciated.

Yvette W.
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“This is a great law office.”

The David I Fuchs law office is a group of excellent people that helped to their fullest potential. They treated me with respect and I really appreciate that. This is a great law office.

Jonathan Z.
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“Never did I imagine myself getting into an accident.”

It has been an unexpected journey since stepping foot in Florida. Never did I imagine myself getting into an accident. I just want to thank the staff and all the support. The Therapy the doctors; you guys were awesome and made me feel better in my situation. This the first time I ever experience such a thing but I’m blessed , thankful and behind it all DAVID FUCHS who made it happen for me.

Sade P.
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I would totally recommend David to everyone. They’re extremely professional and work in a timely manner. They helped tremendously!

A Boone
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A good man knows, his law 35 years experience. Will get the job done and help you and your family get compensated for you pain and damages. I highly recommend this man. I want to revisit my review and say that Mr. Fuchs always picks up his phone and answer any questions that may pertain to my case. Thank you, David.

N. Hit
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“He was able to settle my case with little to no trouble and did so in a very professional manner.”

David Fuchs was my car accident attorney. He was able to settle my case with little to no trouble and did so in a very professional manner. I would highly recommend him to others.

Samantha D.
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“…all went good and successful. thank you so much for all your help.”

I got into an accident for the first time and I didn’t know what do or how things works, but I was lucky to find a professional and helpful people to guide through this experience.
They did take care of my case all went good and successful thank you so much for all your help.

Karen G.
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“Very professional. Had no problems with communication”
Zuberi L.
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“He was there every time I called and got me a great settlement.”

I was in a car accident and looking for a professional, caring attorney.I was fortunate to find Mr. Fuchs, who helped me through the whole process. He was there every time I called and got me a great settlement.

Joan K.
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“My settlement was fast, fair and professionally handled.”

Had a car accident and needed an advocate to communicate my concerns through my insurance provider. The law office of David Fuchs, was efficient and thorough. My settlement was fast, fair and professionally handled. Would highly recommend giving this office a call if you need legal assistance.

Willie M.
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I want to thank the office of David Fuch’s. A+++++ recommended.

J. Hernandez
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“I could not have asked for a better team by my side.”

They were very helpful. I could not have asked for a better team by my side.

S. Rodriguez
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“They got me my settlement pretty quickly and worked hard on my case for me.”

I was in an accident mid last year and Mr. Fuchs handled my case and his case manager[s] Yessi and Jessica were very informative as to the process. They got me my settlement pretty quickly and worked hard on my case for me. Mr. Fuchs was extremely knowledgeable and informed me of everything that would happen in my case. I will recommend this firm to my family and friends and i will be using their services in future if need be.

Pastor D.
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