Certain types of damages recovered in a personal injury settlement or verdict may be taxable. In most cases, compensatory damages, which include both economic and non-economic damages, are not taxable. Examples of compensatory damages include medical bills, lost income, property repairs, pain and suffering, emotional distress, and lost enjoyment in life.
Punitive damages, however, are usually taxable. These are intended to punish the defendant and to deter similar conduct in the future. If you pursue compensation for non-economic damages (such as pain and suffering) but there was no underlying injury, those damages might also be taxable. A skilled personal injury attorney can structure your settlement to minimize tax liability and maximize your potential net recovery.
