Receiving a settlement from a medical malpractice claim often brings financial relief, but it also raises important questions about taxes. Here, we break down what you need to know about the tax implications of your medical malpractice settlement with expert insights from Lytal, Reiter, Smith, Ivey & Fronrath.
If you believe a medical professional caused you or your loved one’s injury, contact our West Palm Beach medical malpractice lawyers at (561) 655-1990 today.
Tax rules for different types of compensation
Most compensation for direct physical injuries or sickness in medical malpractice settlements is not taxable. If your settlement is purely for the physical harm you endured, the IRS typically won’t touch it. However, any part of your settlement compensating for lost income or punitive damages is subject to taxes.
| In legal terms, “lost income” refers to the earnings an individual was unable to receive due to their injury or illness linked to the malpractice. This can include wages, bonuses, and other employment benefits missed during recovery periods. Lost income is calculated based on what the individual would have earned had they not been incapacitated.
“Punitive damages,” on the other hand, are awarded in cases of egregious wrongdoing to punish the defendant and deter similar conduct in the future. Unlike compensatory damages, which aim to make the plaintiff whole, punitive damages are considered a punishment for the defendant’s harmful actions. These are not tied to the direct expenses incurred by the injured party but are intended to serve as a deterrent against harmful or reckless behavior. |
Dealing with emotional distress and tax
Compensation solely for emotional distress, if not directly linked to a physical injury, may be taxable. Understanding the origins of your emotional distress claim is key to foreseeing its tax implications.
Interest and taxation
Remember, if your settlement accrues interest before you receive it, that interest is taxable. Delays in settlement disbursement often lead to accumulated interest, which you must report as income.
Navigating Florida’s tax laws
Florida aligns with federal tax guidelines on medical malpractice settlements, adhering to the IRS’s rules on taxation. Knowing the federal and state tax laws is essential, and consulting with a knowledgeable attorney can provide clarity and peace of mind.
Navigating health insurance and tax implications after a medical malpractice settlement
If you’ve received a settlement from a medical malpractice case, it’s vital to understand how this might affect your health insurance coverage, especially if you’re using the Health Insurance Marketplace. Any increase in income from a settlement could impact the premium tax credit you receive. Timely reporting of this income change to the Marketplace is crucial to adjusting your advance credit payments, helping you avoid unexpected tax liabilities.
At Lytal, Reiter, Smith, Ivey & Fronrath, we understand that the aftermath of settling a lawsuit can be complex, particularly when it intersects with health insurance and tax obligations. Settlements often carry tax responsibilities at both the state and federal levels and not all settlement payments are taxed similarly. To navigate these complexities confidently, consulting with a law firm experienced in medical malpractice and knowledgeable about specific tax regulations is crucial.
Expert legal help from Lytal, Reiter, Smith, Ivey & Fronrath
Our team at Lytal, Reiter, Smith, Ivey & Fronrath is ready to guide you through the complexities of your settlement and help you understand its full impact, including potential tax obligations. For tailored advice and robust representation, reach out to us today.
Contact us for personalized legal assistance if you need detailed advice on how your specific settlement could affect your taxes.
