Are Medical Malpractice Settlements Taxable?

Most medical malpractice settlements are not taxable. If you recover damages based on an injury or illness, you may not have to pay taxes on them. Alternatively, punitive damages and others can be taxed, and a New York medical malpractice lawyer can explain these in detail. 

Initially, a medical malpractice lawyer in New York reviews your case. They calculate your damages and determine how much money you can request in your lawsuit. Next, they aggressively seek compensation on your behalf and put you in a great position to secure damages. 

Are Medical Malpractice Settlements Taxable in New York?

Compensatory damages awarded for your injury or illness may not be taxable. These include compensation provided for your medical bills and other tangible losses. Some parts of your medical malpractice settlement may be subject to tax implications, such as:

• Punitive damages
• Interest on your settlement
• Legal fees

If you are unsure about whether you have a medical malpractice claim or want more information about damages, consult with a lawyer. This gives you the opportunity to share your legal concerns and questions. From here, you can get insights into whether your claim is valid and, if so, how much you could recover via a settlement. 

How Much of Medical Malpractice Settlements Are Taxable?

The taxable amount of a medical malpractice settlement depends on the damages awarded. For example, you could recover compensation for your medical bills and lost wages relating to an injury or illness you suffered due to a healthcare provider’s negligence. In this scenario, you may not have to pay taxes on your settlement. 

On the other hand, consider what can happen if you sue multiple doctors for medical malpractice and receive a settlement that includes punitive damages. The Internal Revenue Service (IRS) treats punitive damages as gross income. Therefore, you will have to pay taxes on your punitive compensation. 

Your lawyer can help you weigh the pros and cons of a medical malpractice settlement. If you receive an offer that falls short of what you want in damages, you can decline it without penalty. Your attorney can keep negotiating for you and do everything within their power to get a settlement that meets your expectations. 

Do I Have to Report My Medical Malpractice Settlement to the IRS?

Typically, you will not have to report your settlement to the IRS if you receive damages for an injury or illness, as this may be non-taxable. It can be beneficial to meet with a tax professional to discuss your settlement. They can examine your settlement and provide details about your tax obligations. 

The IRS classifies any money you receive as “income” as taxable. Per state and federal policies, damages you recover in a medical malpractice settlement are not necessarily considered income. Thus, you may not have to include your settlement in your tax returns. 

Of course, you should pursue maximum compensation from any liable parties in your medical malpractice case. Partner with a medical malpractice lawyer, and they will work hard to achieve your desired case result. Your attorney understands the four elements of medical malpractice and uses this and other relevant information to prepare a compelling argument. 

What Will Happen If I Do Not Report My Medical Malpractice Settlement to the IRS?

There is nothing to worry about if your settlement is not taxable. You keep your settlement money and have the freedom to use it however you choose. Meanwhile, you file your federal and state tax returns as expected, and you are not subject to any penalties. 

If any of your settlement is taxable and you choose not to report this amount, you can face penalties and interest. These can escalate over time. They may even lead to wage garnishment and levying your bank account. 

Do not leave anything to chance relative to your medical malpractice settlement taxes. Work with a lawyer who will give your case the attention it deserves. On top of that, have a tax professional assess a settlement offer and its tax implications.

What Can I Do to Avoid Paying Taxes on a Medical Malpractice Settlement?

Make sure the compensation in your settlement consists of damages relating to your injury or illness. Keep in mind that damages provided for pain and suffering and emotional trauma associated with your injury or illness are usually considered not taxable. Comparatively, damages awarded for pure emotional trauma or punitive losses may be taxed.

Get help from a tax professional as your lawyer negotiates your settlement. A tax professional is familiar with the tax implications of settlements and judgments. They will provide tips and recommendations to help you minimize your tax liability. 

Let an attorney advocate for you and protect your legal rights throughout your settlement negotiations. Your lawyer wants you to recover fair compensation and seek justice from any parties responsible for your injury or illness. They work diligently to ensure you receive the most damages possible. 

Our Medical Malpractice Lawyers Empower Our Clients at Each Stage of the Legal Process

Negotiating a medical malpractice settlement can be tricky, particularly when you have to account for the tax ramifications that come with it. Hire a medical malpractice attorney to guide you through this process. Your lawyer commits time and resources to make sure you receive the settlement you need and deserve. 

Morelli Law Firm has recovered over $1 billion in damages for our clients. We are the premier law firm for those who want to pursue justice in medical malpractice cases and many others. Schedule a consultation with our legal team.