Medical malpractice settlements are not taxable when awarded for personal injury and medical costs. In some cases, settlements awarded for emotional damages are also nontaxable. Generally, settlements are taxable when awarded for punitive damages.
Whether or not medical malpractice settlements are taxable depends on the claim content. Recipients of medical malpractice settlements should consult with an attorney on details of each particular case.
Every settlement has different circumstances, and several areas exist where settlement amounts, either in full or in part, are taxable to the recipient. For example, settlements for emotional damages normally are only tax free for the amount of the settlement required to treat these emotional damages; the rest of the settlement is taxable. However, settlements received for emotional damages where the damages are caused by a physical injury are generally nontaxable. Recipients could consult with an attorney to determine if their emotional damages are the result of a physical injury.
Settlements for lost wages in everyday circumstances are taxable; however, exceptions exist, and recipients should consult with an attorney to see if they qualify for any of these exceptions. Settlements for punitive damages, even those where a physical injury or illness is involved are taxable, as are settlements for pain and suffering due to a death of an individual. In addition, any interest on a medical malpractice award is taxable.