If you've received a medical settlement because of malpractice, you probably wonder if the money you receive is taxable. It can be difficult to determine if a particular settlement amount will be taxable based on state and federal tax laws, but there are some exceptions. Here are the tax rules for medical settlements. You should be careful with your paperwork to avoid any surprises. In addition, consult with a lawyer before accepting any payment.
Medical settlements will likely be taxable in the state where you live. If you don't itemize your deductions, you may be required to report the entire amount of your settlement as taxable income. However, if you live in a state without income taxes, your medical settlement should not be taxable. If you're unsure, consult a tax professional and keep copies of any receipts. Hopefully, the amount of tax you receive won't be significant.
Medical settlements will not be taxable if they're for a physical illness or personal injury. However, if the settlement proceeds are paid out over more than one year, they'll be taxable. For those who don't need to worry about taxes, medical settlements will help you pay off your medical expenses. The tax laws are designed to make sure you don't end up paying more than you're entitled to.
Medical settlements may also be taxable if you've already used your premium tax credit to cover the cost of your health insurance. However, you must keep in mind that your income may be impacted if you combine your medical settlement and workman's compensation benefits. If you're a workman's comp beneficiary, be sure to consult with your attorney about your settlement taxes before agreeing to any settlement amount. A skilled attorney will be able to structure your settlement to minimize the tax impact.