Whether or not mesothelioma settlements are taxable is a complex issue. It is related to the issue of a personal injury settlement being taxable or not. As most asbestos victims receive general and special damages for their compensation, they usually are not required to pay any taxes on their money.
So settlements of this type are usually free of tax consequences. Generally, the financial compensation you receive in a mesothelioma case for emotional distress, personal injuries, and medical expenses are not taxable at the state or federal level. However, some aspects of compensation that mesothelioma victims can be awarded may be taxable.
Average Mesothelioma Settlements
On average, money that you win in a mesothelioma settlement is not taxable if it is in the form of general damages or special damages. Typically, according to a 2016 Mealey’s Litigation Report, the average trial award is $2.4 million, and the average settlement award is between $1 million and $1.4 million.
General damages refer to compensation that is intended to cover costs that arise from the sickness, special damages compensate you for your pain and suffering. Most mesothelioma lawsuits are actually a form of personal injury lawsuit. So most people obtain general damages and special damages, so they do not pay taxes.
There always are exceptions, however! Some victims of asbestos could receive a type of compensation that is taxable. There are two major types of taxable settlements that you should be aware of:
- Punitive damages: These are different than general damages in that the compensation is not intended to compensate you for your losses. Punitive damages are awarded to punish the defendant for reckless conduct. So if you receive this type of compensation, you will need to report it as income. However, in several US states, punitive damages that are awarded to families in a wrongful death action do not pay taxes.
- Compensation for loss income. The other type of compensation that is taxable is if you receive money for lost wages or profit. If you get any compensation in your settlement for this, then it has to be reported on your tax return.
- Attorney’s fees: All legal fees are usually deducted before you are paid. Taxes should be adjusted by the law firm or could be reimbursed on your personal tax return.
- Interest: Any interest that is earned while the settlement is being processed can be taxed. It is just like income that comes from any investment.
- Pension rights: Settlements that feature pension rights can be taxed at the same rate as any other type of pension income would get taxed.
More Details About Compensation for Mental Anguish
The IRS talks about tax exemption as it relates to mental anguish or emotional distress compensation. The IRS says that any stress related suffering as part of a physical injury or personal illness is not taxable as income. Some lawsuits feature compensation with some funds that are allotted to your physical injuries, and other funds for the emotional injury. (Money.HowStuffWorks.com).
It should be noted that the IRS limits the mental anguish aspect with caveats. Emotional distress from a mesothelioma injury needs to be directly caused by the physical injury for the compensation to not be taxable. If the mental anguish was there before the mesothelioma or related disability, then the money that is awarded would be considered taxable.
Generally, people who suffer from mesothelioma do not need to worry about this. For the most part, the IRS needs to recognize mental anguish is a necessary component of being diagnosed with this disease.
Other Tax Issues Regarding Settlements
Another twist in the matter can occur depending upon who is actually being compensated. Some mesothelioma settlements are paid to a living victim. But others turn into wrongful death mesothelioma lawsuits where the estate or eligible family receive the funds. Sometimes plaintiffs will ask that funds be given out between parties or given out in installments instead of lump sums. There also is the matter of compensation that comes from asbestos trust funds, veterans benefits or insurance settlements.
There are not specific rules surrounding these compensation scenarios for IRS tax purposes. Much depends upon the facts and circumstances of the individual case. This is a matter for an experienced tax and/or mesothelioma attorney to handle.
Get Mesothelioma Legal Help
With over $30 billion available for victims through the Asbestos Trust Funds, you could be entitled to financial mesothelioma victim compensations without ever filing a lawsuit? Mesothelioma & Lung Cancer victims qualify immediately. Complete the form or call us toll free (800) 352-0871
- How Lawsuit Settlements Are Taxed. (n.d.). Retrieved from https://money.howstuffworks.com/personal-finance/personal-income-taxes/how-are-lawsuit-settlements-taxed.htm
- Mealey’s Litigation Report – Asbestos. (2015). Retrieved from http://gnarusllc.com/wp-content/uploads/2016/07/ASB121615cm.pdf