In most cases, you will not need to pay taxes on medical malpractice settlements. However, under certain circumstances, you may need to pay taxes on some parts of a payout. It depends on what the money is meant to cover.
Your Fort Lauderdale medical malpractice lawyer can help you better understand the recoverable damages in your case and when taxes may be necessary. You may also want to consult a tax expert when you file your taxes following this type of injury and payout.
Compensation For Physical Injuries Or Harm Are Not Taxable
According to the Internal Revenue Service (IRS), compensation for physical injuries or illness is not usually taxable. If your settlement is only compensation for the physical harm you suffered and related damages, it is not considered taxable income. This includes:
- Pain and suffering caused by a physical injury
- Medical expenses (not previously deducted on a past tax return)
- Out-of-pocket costs due to your injury
However, if your compensation is for emotional distress or mental anguish, it could depend on the circumstances whether it is taxable. These non-economic damages are common in cases based on physical injuries. In these cases, they are not taxable. They may be taxable in some cases where the harm was only emotional and there were no physical injuries.
What Damages Might Be Covered By My Medical Malpractice Settlement?
When your attorney negotiates a medical malpractice settlement based on your Florida injuries, they will seek compensation for a range of costs and non-economic losses that you experienced due to the injuries you suffered. These recoverable damages determine the potential value of your case and what a fair settlement looks like.
They could manage the negotiation process and settlement agreement in several ways. This could include seeking compensation for specific expenses or negotiating for an amount that generally covers the costs. The damages commonly included in a medical malpractice settlement include:
- Medical care costs for the treatment and management of your injuries and related complications
- Future care and support costs related to malpractice injuries
- Income losses
- Reduced ability to work and earn in the future, if there are lasting impairments
- Out-of-pocket expenses
- Pain and suffering damages
- Other non-economic losses, such as emotional distress and diminished quality of life
Lost Wages Might Be Taxable In Some Cases
If you are seeking damages for lost income, you should discuss how this is managed with your attorney. Sometimes, you may need to pay taxes on a portion of your settlement if it is specifically labeled as lost wages.
When this is necessary, this portion of your settlement will most likely be handled in the same way as your normal earned income is for tax purposes. This includes paying Social Security and Medicare taxes or being subject to self-employment taxes.
Each element of your settlement may be treated differently under tax law. That’s why identifying how your compensation is categorized is vital. Working closely with your attorney to allocate these amounts appropriately in your agreement can help reduce tax liabilities and ensure compliance with IRS rules.
Punitive Damages And Interest Are Taxable Parts Of Your Payout
While most parts of a medical malpractice settlement are not taxable, you may need to pay taxes on certain portions of a payout. This could include:
Punitive Damages
If you received punitive damages in your case, this portion of the payout is taxable under federal law. Punitive damages are not meant to compensate you for your losses; instead, they serve to punish particularly egregious misconduct by a healthcare provider.
In Florida, punitive damages are rarely awarded and are strictly limited by statute. They are generally only available in cases involving intentional misconduct or gross negligence. Even when permitted, Florida law caps punitive damages with some exceptions in extraordinary cases. Because of these restrictions, punitive damages are uncommon in medical malpractice settlements, but if awarded, they will be subject to taxation.
Interest On The Settlement
If you receive interest on your settlement, that interest is taxable income. While interest is not generally called such in negotiated settlements, it might be awarded when a case goes to trial after a long wait. Your attorney can advise you on whether this might be a factor in your case.
How Can A Medical Malpractice Attorney Help With My Tax Concerns?
While most of your medical malpractice settlement will not be taxable, there could be portions that are. Your attorney can explain which parts of the settlement covered potentially taxable damages and explain your settlement agreement to you in detail.
Our medical malpractice lawyers are familiar with how these laws work and can help you pursue your settlement in a way that minimizes the taxes you will need to pay. They can also explain the harm your payout covers and whether you are receiving taxable damages.
When our attorney writes the settlement agreement, we can clearly define what each portion of the payout is for. This can make it easier to determine how much you must pay taxes on and document it for the IRS if there are questions or an audit.
Still, it is wise to work closely with an accountant or another tax professional when filing your taxes the year you receive your payout. This will ensure you know how the federal and state tax laws apply to your situation and steer clear of trouble with the IRS.
Talk To Our Florida Medical Malpractice Team If You Believe You Have A Case
At Anidjar & Levine, our medical malpractice team represents victims and their families across Florida. If you believe a doctor or another care provider acted negligently and caused you to suffer preventable injuries or an advancing illness, you could have a viable case against the physician or facility.
We provide free consultations. You can discuss your case with our team to learn how a Florida medical malpractice lawyer from our firm can help you pursue compensation and accountability. If we negotiate a settlement for you, we will also provide guidance that could help you understand any taxes you may need to pay. If you were hurt, we can help. Contact us today to get started.
