When you receive a medical malpractice settlement, do you have to pay Federal income tax?

[lalla3]

For a settlement to be tax-free, it must be meet two requirements:

One) A physical injury or illness must have occurred. Without either, the proceeds are taxable. "Distress" is not a physical injury, but a stress disorder resulting from an accident is.

Two) The injury or illness must be the result of a tort - meaning a wrongful act, injury or action.

A med mal settlement meets both of these requirements and will be totally tax free.

But if you received compensation for loss of earnings, etc ... that portion of the settlement will be taxable. The good news is that your lawyers cut is an itemized deduction.

A real smart lawyer who knows what he or she is doing will structure things to your advantage whenever possible, for example dropping the wage claim entirely and taking a lump sum settlement with no allocations.

[lifton]

No, can you believe it.

[yago]

I'm almost certain the answer is "no". It's not income. It's a settlement. Like life insurance policies, when collected, are not taxable. But just to be certain, do check with an accountant.

[rickie]

Are you kidding me?? Of Course