One of the most common questions I hear in my Personal Injury practice when we are talking about a verdict or settlement is “Do I have to pay taxes on my Personal Injury Settlement?”
For Personal Injury cases not involving death, the answer is easy, no, they are not taxable. Although the IRS and state governments attempt to tax any income, Personal Injury settlements or verdicts are not considered income. Instead, they are considered compensation for injuries, a payment made to make up for losses sustained by the accident victim. Because of this, the proceeds are not considered income and are not taxable.
However, if an injury resulted in death, the proceeds of a Wrongful Death claim can be subject to federal and state tax. With regard to a Pennsylvania death, two claims result: one for the beneficiaries of the deceased (the Wrongful Death action) and another for the estate of the deceased person (the Survival Act claim). Proceeds of the Wrongful Death action are not subject to taxation, but, proceeds of the Survival Act claim are subject to state and federal estate tax. Because of this, when settling a death case, it is important to consider the tax consequences.
For more information on Personal Injury and Wrongful Death claims, contact Tim Rayne, a Chester County car accident and Personal Injury attorney, at 610-840-0124 or [email protected] Tim has offices in Kennett Square and West Chester, Pennsylvania.