Will IRS Take a Huge Chunk of YOUR Medical Malpractice Settlement?

If you are awarded a huge settlement in a medical malpractice lawsuit, will the IRS take a large chunk of it? Those are valid questions that need to be answered in order to maximize your compensation. The IRS may not even want to touch your medical malpractice settlement! There are certain things that you can do to minimize the IRS's bite, though. For example, you can avoid having your compensation subjected to taxes by taking advantage of the tax benefits available.

For example, let's assume that Jane had a car accident and injured her back. She went to the emergency room, and was prescribed pain medications to ease her pain. Her pain caused her to miss a week of work. After consulting with an attorney, Jane settles her medical malpractice claim with the insurance company of the negligent driver John. The insurance company pays Jane $100,000 in settlement. Jane gets the money tax-free. She doesn't have to report the money to the IRS.

While there is no clear guidance on whether medical malpractice damages are taxable, most personal injury lawsuits are tax-exempt. This means that any recovery that is made on a legal malpractice lawsuit is subject to taxation. This tax treatment applies to both compensatory and punitive damages. The IRS will almost always argue that the compensation is taxable, so it is wise to understand your case thoroughly before signing any documents.

The IRS will tax the majority of the money you receive from a lawsuit settlement. If you expect to collect a huge settlement, it's important to consult an accountant before signing anything. After all, the IRS considers the money you receive as income. So, it is vital to understand how to minimize the taxes on this money. When you hire an accountant to review the tax implications of your medical malpractice settlement, you'll be able to avoid the potential of facing a massive tax bill.

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