Maryland personal injury settlements not taxable! I repeat, Maryland personal injury settlements not taxable.
Recently, a Maryland personal injury client asked if their settlement would be taxed by the State and Federal governments? The answer is: No.
Personal injury settlements not taxable, because not income
In general, there is no tax on Carroll County personal injury settlements where the individual was physically injured in an accident.
However, if there is a recovery for defamation of character, employment discrimination, wrongful discharge, etc., then the settlement is taxable.
A personal injury settlement is not taxable as income, except to the extent that a designated portion of the settlement is for lost wages.
Generally, however, settlements are simply paid in lump sum, and there is no distinction made as to which part is for lost wages and which part is for general compensatory damages such as pain and suffering. Therefore, the entire sum is deemed to be non-taxable.
In fact, as part of the instructions to a personal injury jury, the judge instructs the jurors that they not consider taxes when awarding damages. This is important because you don’t want the jury acting as the IRS and deducting taxes from their award to you.
The IRS views personal injury damages as the monetization of an actual loss suffered by the individual, and as a result, it cannot by definition be income subject to taxation.
It is always best to discuss tax issues with a Certified Public Account if you have questions regarding your personal injury settlement.
Schedule a free Carroll County Personal Injury Attorney Consultation
The Law Office of Ross W. Albers is located in Carroll County, Maryland. Westminster Personal Injury Attorney Ross W. Albers is former Maryland insurance adjuster that knows what you’re up against. If you have been injured by the negligence of another, then contact the Law Office of Ross W. Albers to schedule a free consultation.