Are Mesothelioma Settlements Taxable?
Mesothelioma lawsuit settlements are generally not taxable under Internal Revenue Service (IRS) guidelines. An experienced attorney is the best resource to help you understand whether mesothelioma lawsuit settlements are taxable in your case. Early, Lucarelli, Sweeney & Meisenkothen’s (ELSM) legal team can help you secure a settlement and determine whether any specific portion of your compensation may be taxable.
At a Glance
- The majority of mesothelioma settlements are not taxable because they are providing compensation for personal injury or illness.
- The key factor in considering the taxability of amounts received from the settlement of lawsuits is to determine the purpose for which the money was received.
- According to IRS rules, compensation related to personal injury or physical illness is typically excluded from income.
- Specific portions of mesothelioma compensation, such as money received as interest payments or from punitive damages, may be taxable.
- Understanding whether mesothelioma lawsuit settlement tax rules apply to your case is best done with the help of an experienced lawyer who can explain the details of your compensation.
Are Mesothelioma Lawsuit Settlements Taxable Under Federal Law?
Under federal tax law, specifically Internal Revenue Code (IRC) § 104(a)(2), mesothelioma settlements are generally not considered taxable income. The IRS does not tax compensation that is awarded for personal injury or physical illness. Because mesothelioma is a serious illness caused by asbestos exposure, the settlement money awarded is typically non-taxable.
Compensatory damages in mesothelioma lawsuit settlements usually cover medical bills, emotional distress, and other losses directly tied to an individual’s mesothelioma diagnosis. Therefore, this money is not usually subject to federal income tax.
There are some exceptions where a portion of a settlement may be taxable. Interest earned on a mesothelioma settlement is generally taxable because it is not considered compensation for the illness itself.
Experienced lawyers at ELSM Law can work with you to determine how much of your mesothelioma compensation, if any, may be taxed.
| Compensation | What Is It For? | Is It Taxable? |
|---|---|---|
| Emotional Distress | Awarded in a mesothelioma settlement or verdict for emotional suffering due to illness | No |
| Medical Expenses | Reimbursement for treatment-related costs due to illness | No |
| Lost Wages | Awarded for income lost due to illness | No |
| Punitive Damages | Awarded in trial verdicts to punish asbestos companies | Yes |
| Interest | Accrued on mesothelioma settlement and trial verdict payments | Yes |
Non-Taxable Mesothelioma Compensation
When asking “are mesothelioma settlements taxable,” it is important to understand that most compensation is tax-free when directly tied to an illness like mesothelioma. This rule applies not only to settlements, but also to trust fund payments and trial verdicts. In general, compensatory damages awarded for personal injury or wrongful death, rather than for financial gain, are exempt from federal income tax.
Personal Injury and Wrongful Death Settlements
Compensation awarded is generally not taxable in personal injury and wrongful death cases. These payments are intended to compensate individuals for harm caused by asbestos exposure, including physical suffering from illness, loss of life, or both. The IRS excludes these settlement payments from taxable income.
Medical Expenses
Compensation for medical expenses is typically not taxable. These may include payments awarded for doctor visits, hospital bills, medications, surgeries, and specialized treatments. Since these costs are directly related to treating mesothelioma, the IRS excludes them from taxable income as compensation for physical illness.
It is important to note one exception to this rule. If any portion of a settlement reimburses medical expenses that were previously deducted on a prior year’s tax return and provided a tax benefit, that amount must be reported as income in the current year and is taxable.
Lost Wages
The IRS does not consider lost wages taxable when they directly result from a personal injury or illness such as mesothelioma. When lost wages are included in a settlement related to a diagnosis, they are typically excluded from taxable income.
In other contexts, however, lost wages are taxable. This includes situations where compensation for lost income is awarded when no physical injury has occurred, such as in cases involving discrimination, wrongful termination, or contract disputes.
Emotional Distress
Settlement compensation awarded for emotional distress directly resulting from a physical illness is not taxable. Emotional conditions such as anxiety and depression can be directly linked to an aggressive disease like mesothelioma, which can cause significant emotional pain and suffering.
What Portions of a Mesothelioma Settlement May Be Taxed?
While most settlement compensation is not taxable, there are exceptions. When considering whether mesothelioma lawsuit settlements are taxable, it is important to understand the difference between the type of compensation received from settlements and trial verdicts, as well as which components the IRS considers taxable income. Certain portions of compensatory damages, not directly tied to an illness, such as accrued interest, may be subject to taxes.
Interest
Interest earned on a mesothelioma settlement is typically considered income by the IRS and is taxable. For example, if a settlement is paid over time or includes accrued interest, that interest portion is subject to tax. While the settlement itself is tax-free, the interest is not. ELSM lawyers can help you understand how any interest on your settlement may be taxed.
Punitive Damages
Punitive damages are normally awarded in trial verdicts and are almost always taxable. Their primary purpose is not to compensate victims for personal injury, but to punish companies for knowingly exposing individuals to the harmful effects of asbestos. Because punitive damages are not compensation that is directly associated with physical injury or illness, the IRS treats them as taxable income.
How to Minimize Taxes on a Mesothelioma Settlement
Although most mesothelioma settlements are not taxable, it is important to note the way a settlement is worded and structured may affect its tax treatment by the IRS. For example, clear language identifying compensation for personal injury or illness can help establish its tax-free status.
Additionally, if compensation is structured to be paid over time, taxable elements such as interest may apply. An experienced ELSM mesothelioma lawyer can work on your behalf to ensure that your settlement is structured to maximize compensation and minimize potential tax liability.
Speak With an Attorney About Mesothelioma Compensation Options
ELSM Law has over four decades of experience pursuing legal rights for mesothelioma victims. Our dedicated legal team can guide you through the asbestos claims process and help you understand the compensation options available for your specific case. Types of mesothelioma compensation may include personal injury lawsuits, wrongful death settlements, asbestos trust funds, and VA benefits, among others. Contact us today for a free case evaluation.
FAQs
Are mesothelioma settlements considered taxable income?
No, in most cases. Mesothelioma settlements are generally not considered taxable income because they compensate for physical injury or illness. However, there are certain exceptions, such as accrued interest, which may be taxable.
Do you need to report a mesothelioma settlement on your taxes?
Yes, you may still need to report a mesothelioma settlement on your taxes, even though most settlement compensation is not taxable. Tax requirements may vary based on how the settlement is structured, and it may include taxable portions such as interest or punitive damages.
What types of mesothelioma compensation are taxable?
Punitive damages and interest earned on settlement payments are examples of mesothelioma compensation that may be taxable. While most compensation is not taxable, these exceptions are treated as taxable income by the IRS because they are not directly tied to personal injury or physical illness.
Request a Free Case Evaluation
Request a free case evaluation now if you or someone you love has been diagnosed with mesothelioma. The evaluation will cost you nothing. Our lawyers will travel to visit you at your convenience or conference call with you over the phone. We understand how difficult a time this is for you and will assist in any way that we can. You can also call us toll-free at 800-336-0086 at any time.
Attorney Meisenkothen is a member of several professional organizations, including the Connecticut Trial Lawyers Association, the American Association for Justice, the American Bar Association, and the Connecticut Bar Association.
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