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Frequently Asked Questions For taxes on personal injury claims

Are Personal Injury Claims Taxable in New York?

The general rule is that the proceeds for compensatory damages, such as medical bills, from a personal injury claim are not taxable under federal or state law. This rule applies whether the claim was settled prior to or after filing a lawsuit, or if the proceeds were awarded in a verdict following a trial. 

The reason for the general rule is that compensation for compensatory damages is meant to essentially reimburse an individual for the losses suffered as a result of an injury. As such, any compensated gain is meant to offset the losses, so there is no net gain from the proceeds.

Personal injury claims include several types of cases that could fall into the general rule of non-taxable settlement proceeds. Some of the common types of non-taxable personal injury settlements include:

  • Motor vehicle accidents

  • Boating accidents

  • Animal bites and attacks

  • Slip and falls and other premises liability cases

  • Dangerous or defective products

  • Workplace accidents

  • Medical malpractice 

  • Dangerous or defective medications

  • Wrongful death 

Unfortunately, most personal injury claims include compensation for many types of damages, so taxability is not always a straightforward question. For that reason, you should contact the trusted personal injury lawyers at Law Office of Dennis P. Ryan for a free as to the taxability of your personal injury settlement or award.

Exceptions to the Rule on Taxing Personal Injury Claims in New York

There are several exceptions to the general rule that can present many complexities in determining the taxable portions of the settlement proceeds. Failure to properly include taxable portions of a personal injury settlement could result in severe tax penalties.

Punitive Damages and Interest Exceptions

In some cases, punitive damages are awarded to provide additional punishment for reckless or intentional behavior of the liable party and prevent similar conduct in the future. Compensation for punitive damages is awarded on top of compensatory damages, and as such, these proceeds are typically taxable.

Additionally, the interest earned on a verdict or settlement amount from a personal injury claim is generally taxable. Many states have court rules that provide interest on a personal injury settlement or verdict for the time the case was pending before the court.

For example, if a verdict awards compensation to an injured party one year after the lawsuit was filed, the injured party could receive interest on the verdict amount starting from filing date and running until the payment is made.

Other Common Exceptions to the General Rule

In some cases, an injured person might sustain emotional distress damages from an accident or incident. Emotional distress commonly results from an injury, such as anxiety or depression following a significant injury. However, it can also be unrelated to any injury, such as seeing a close loved one suffer harm.

If the emotional distress damages are connected to a physical injury or illness, any compensation is generally not taxable. If the damages are not connected to a physical injury or illness, the compensation is typically taxable.

Personal injury settlements also often include compensation for lost wages while an individual recovers from an injury. Unfortunately, this portion of a settlement is generally taxable as income, according to the Internal Revenue Service.

It is important to understand the breakdown of a personal injury settlement to ensure the proceeds are properly reported for tax purposes. Call Law Office of Dennis P. Ryan at (212) 441-4352 to schedule .

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recent results |

  • The Law Office of Dennis P. Ryan was able to win an important motion to allow a Department of Sanitation Supervisor to bring a Personal Injury Claim against the City of New York. Anyone who plans to sue a municipality in the State of New York, must file a Notice of Claim within 90 days of the date of the accident. A New York City Sanitation Supervisor recently contacted our law firm 5 months after the accident, and more than 2 months after the Notice of Deadline had passed. Our office was successfully able to convince the Court that our client's claim fell under an exception and should be allowed to proceed. Our client is now likely going to be able to receive money for his pain pain and suffering and lost wages.

  • Our client was a Sanitation Worker who was hit by a car while he was servicing his route. He suffered an ankle injury that required him to go for Physical Therapy for 1-2 months. Even though he did not need any injections or surgery, we were able to convince the insurance company to offer the full amount of its $25,000 to settle the case. We were able to achieve this settlement before our client needed to appear for a deposition.

  • Our client was a Sanitation Worker who was hit by a car while he was servicing his route. He had to have a shoulder surgery and missed several months of work, losing Chart Money, Truck Money and Overtime Money. We filed a lawsuit on his behalf in Kings County (Brooklyn). Our office was able to settle case for the full amount of the driver's Insurance Policy. We were able to achieve this settlement before our client needed to appear for a deposition.

  • Our office was able to settle a case for the full amount of Insurance Policy for Pedestrian who tripped and fell on sidewalk in Nassau County. This was a tough case in a tough venue for Plaintiff's attorneys. Our client had contacted 2 previous law firms who declined her case because they thought it would be too difficult to obtain a settlement. Our office was not only able to settle the case but we were able to persuade the insurance company to offer the full amount of its insurance policy to settle the case.

  • Our office was able to obtain a settlement for $95,000 (out of a total of $100,000) for a Sanitation Supervisor who hurt his ankle in a car crash. The insurance company for the other driver made several motions to the court asking the Judge to dismiss the case. We were able to defeat each of these motions and eventually settle the case for $95,000. This was more than 3 times the initial settlement offer that the insurance company made.

  • Our client fell on a broken sidewalk in the Bronx in front of a 1 family house. We brought a lawsuit against the City of New York and the insurance company for the homeowner. Our client aggravated injuries to his ankle that he had suffered years ago while playing sports. The Insurance Company made a Motion to the Court asking to dismiss our case. We were able to defeat this Motion and we were eventually able to settle this case against the City of New York and the Insurance Company for a total of $75,000.

  • Our office was able to obtain a settlement of $97,500 out of a possible $100,000 in available insurance coverage for a Car Crash that happened in New Jersey. Our client was involved in a 2 car crash. She had a stop sign and the other driver did not have a stop sign. For that reason, the insurance company claimed that the crash was completely the fault of our client. Our firm hired investigators who canvassed the scene for witnesses, photos and videos of the crash. We were able to prove that the other driver was driving too fast for the intersection and was also at fault for the crash.

  • Our office was able to obtain a settlement of $170,000 for a woman who slipped and fell on ice on the stairs of the house that she rented an apartment at. Her landlord's insurance company argued that the landlord had done everything it could to prevent our client's fall. We were able to prove that the landlord had not properly shoveled and salted the steps before our client's fall.

  • Our Office settled a case for a Sanitation Worker who tripped and fell on uneven pavement inside his Sanitation Garage and hurt his ankle. The Worker had several prior Line of Duty Injuries (LODIs) where he had also hurt his ankle. Our office was able to prove that this LODI aggravated the old injuries and made the injuries worse.