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Are Medical Malpractice Awards Taxable?

If you’ve received compensation from a medical malpractice lawsuit, you may have questions regarding whether you need to claim the income on your annual taxes. Taxes are complicated, so read carefully to gain a full understanding of what needs to be done.

Physical Injury or Illness

According to the Internal Revenue Service (IRS), if you attained compensation for personal physical injuries or sickness and didn’t receive an itemized deduction for your medical expenses regarding the injury or illness in years prior, you don’t have to pay taxes on that money.

However, if you deducted medical expenses related to your illness or injury from your taxes in years past, you’ll need to include that portion of your settlement in your income; so long as you received a tax benefit as a result. If you paid for your medical expenses over the course of more than one year, you’ll need to allocate the portion of the compensation for medical expenses for all the years in which you paid.

Emotional Distress or Mental Anguish

If you experience emotional distress or mental anguish as a result of the medical error, the compensation for these damages is treated the same as compensation from a physical injury or illness.

However, if you receive compensation for emotional distress or mental anguish that didn’t emerge due to the medical error, you’ll need to incorporate them in your income. Although, the amount you’ll need to include is decreased by the following:

  • Money paid for medical expenses applicable to emotional distress or mental anguish that you haven’t already deducted
  • Money regarding emotional distress or mental anguish that’s related to your medical expenses as a result of the medical error that you’ve deducted in years prior but didn’t receive a tax benefit.

In your tax documents, be sure to include a statement that provides the whole settlement amount, not including medical expenses that weren’t deducted prior and medical expenses that you deducted but didn’t receive a tax benefit for.

Lost Wages

If you receive a settlement for lost wages, these earnings are considered taxable income.

Punitive Damages

Punitive damages are considered taxable income and should be included in the “Other Income” section on your tax documents.

If you’ve experienced medical malpractice, you may be able to recover damages for your injuries or illness. Don’t wait to contact our firm with your case right away.

Call Dempsey & Kingsland, P.C. today at (816) 484-3776 for a free consultation regarding your case.

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