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Is Legal Settlement Taxable 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.

David I. Fuchs is a personal injury attorney in Fort Lauderdale and the founder of David I. Fuchs, Injury & Accident Lawyer, P.A. David has an extensive background representing plaintiffs in personal injury cases and has been practicing law for over three decades.

David I Fuchs

Attorney at Law, David I Fuchs, Injury & Accident Lawyer, P.A.

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Saarina Polanco
Saarina Polanco
2024-05-09
Yo recomiendo éste avoga son muy bueno cien por ciento 👍👍👍💯💯💯
Fabio Varens
Fabio Varens
2024-04-18
David I. Fuchs comes highly recommended for anyone in need of a top-notch accident attorney in Fort Lauderdale. With over three decades of experience, his firm is known for its client-focused approach, maintaining strong communication and offering personalized legal strategies. They are particularly adept at negotiating with large insurance companies and handling complex courtroom cases. A great choice for effective and compassionate legal representation.
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Ethan Cohen
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Great accident lawyer. Gave us invaluable advice when an air conditioning truck hit my car
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Israel Andrade
2024-02-05
I cannot speak highly enough of Dr. David I. Fuchs, the injury law expert in Fort Lauderdale. When I urgently needed legal guidance, he was on the spot, providing precise and honest information. David's quick responsiveness, combined with his accuracy and transparency, made a significant impact during a challenging time I was facing due to a total loss in a car accident. I greatly appreciate his professionalism and recommend his services to anyone seeking a trustworthy and reliable injury law attorney in South Florida.
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Darcy Israel
2024-02-01
They did a great job with keeping me updated with my case. I would refer them to anybody in the future.
Matthew S.
Matthew S.
2024-01-27
I just want to say thank you to Mr. Fuchs he personally took a call on Saturday and due to the nature of circumstances he was not able to take the case but he provided me with the proper means to go about the case and offered any advice that he can give along the way for my situation. Thank you for listening and your support.
tom neenan
tom neenan
2024-01-26
Mr. Fuchs handled my case fast and always got back to me to explain all details. I recommend his friendly demeanor and kindness. I felt like family. Thank you very much for the service and wonderful settlement.
Wendy Janet Mendez
Wendy Janet Mendez
2024-01-26
I recommend The Law Offices of David Fuchs. They are very professional and care about their clients. I got into a car accident and the whole process was really smooth.
Lynne N.
Lynne N.
2023-11-14
David Fuchs and his staff were consummate professionals when I needed a law office to represent my injury case. They communicated the process in detail and kept me apprised of the progress as necessary. It was a relief to be able to rely on them during a stressful time. It was nice to have the personalized attention of a smaller law firm as my champion.
CG
CG
2023-11-06
When you’re involved in an accident and have injuries you need an attorney who is experienced AND who will give you the personal attention you need. You want someone who the insurance companies know won’t just accept any offer to make a commission. That's what separates Mr. Fuchs from the rest, especially the large law firms. He knows the law and he will fight for you like you are a member of his family. I highly recommend him to anyone who has been in an accident and needs aggressive representation for their injuries and other financial losses that happen as a result!

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