One of the most rewarding moments as a personal injury attorney here in Corpus Christi, Texas, is handing my client their well-deserved settlement check. This is the day they’ve anticipated, the day the insurance company finally compensates them for the pain and suffering they’ve endured. While no settlement can fully erase what they’ve been through, it offers a sense of closure and validation for their experience.
But as exciting as this day is, it often raises some important questions for clients—one of the most common being, “Will my settlement impact my taxes?”
Understanding the Tax Implications of Your Settlement
When it comes to settlements, the IRS has specific guidelines regarding taxability. Under Section 1.104-1 of the federal tax code, settlements received for personal physical injuries or sickness are generally not taxable. According to this section, any damages received on account of physical injuries or sickness, whether paid out as a lump sum or in periodic payments, are excluded from gross income (with the exception of punitive damages).
Here’s the core of the law in simple terms:
- Settlements for physical injuries or physical sickness are tax-free.
- Emotional distress on its own isn’t tax-free, but if the emotional distress is directly tied to a physical injury or sickness, it may qualify for a tax exclusion.
Why Hire Herrman & Herrman, P.L.L.C.?
Deciphering legal terms and IRS codes shouldn’t be your concern during such a vulnerable time. When you’re dealing with a personal injury case, you deserve a team that doesn’t just represent you in court but also guides you through the financial and tax implications of your settlement. At Herrman & Herrman, P.L.L.C., our commitment to our clients goes beyond the settlement—we provide the support you need to navigate each part of your journey to recovery.
Herrman & Herrman has spent decades serving residents across Corpus Christi and the Rio Grande Valley, building a legacy of trust and commitment. Our attorneys are available 24/7 to address your questions and provide clear, practical advice on every aspect of your case, including tax considerations.
A Team That’s Here for You—Always
Our consultations are always FREE—whether it’s in person or over the phone. If we can’t directly assist with a specific legal matter, we’ll connect you with someone who can. Our goal is to ensure you’re fully supported from start to finish, and if you or a loved one needs guidance, we’re just a call away.
Choose Herrman & Herrman, P.L.L.C., and let us put YOU first. Call us at 361-882-4357 or visit our office at 1201 Third Street, Corpus Christi. We’re here to handle the complex parts of your case, so you can focus on what matters most—healing and moving forward.
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