(800) 337-4002
call for your free personal
injury case consultation
Available 24/7
injury case consultation
Available 24/7
In Kentucky, personal injury claim settlements are not taxed as income in most situations. There are some exceptions and special circumstances in which income could be considered and, therefore, counted towards your reported taxes. The Internal Revenue Service (IRS) does not consider economic or non-economic damages taxable income or gain, and therefore does not require you to report these funds as income on your federal taxes.
In every situation, it is wise to consult a tax professional or a personal injury lawyer in Lexington for clarity on the details of your case.
Financial compensation received from personal injury settlements does not count as income in Kentucky in most situations for state tax reporting purposes. This means you typically do not require you to report the funds you receive in a settlement. This may include:
Rather, the state’s laws see these funds not as compensation to you but rather to reimburse you for the injuries and losses you suffered due to the incident. Kentucky tax laws do not count them as income in these situations.
There are several potential exceptions that you need to keep in mind when reporting these damages on your taxes. For example, if you receive economic damages to cover missed income, such as lost wages, benefits, or bonuses, taxes would apply as they would apply to the funds as if your employer paid them to you. You would pay taxes on those funds in the same way.
In some situations, non-economic damages may be taxable. There are times when emotional distress claims could fall under the requirement to report the funds as income. The state does not consider mental anguish or emotional distress as physical injuries, and therefore requires you to report those funds as compensation.
The state does not require you to pay taxes on punitive damages. Punitive damages are a type of punishment paid by the at-fault party for their reckless and intentional actions. Though rarely awarded, if you receive punitive damages, they are not part of your personal injury settlement, and the state does not consider those funds as a form of income.
Injured in an accident?
Call our Personal Injury Attorneys at (859) 268-4300
Under federal tax law, the IRS does not consider personal injury settlement payments to be income. This includes economic and non-economic damages. As a result of this, you typically do not have to pay taxes to the federal government on the amount you receive from the settlement. Unlike federal income taxes, the IRS Revised Code also does not include any portion of the amount allocable to lost wages, providing further protection from loss of your settlement value.
Another exception to the rule applies to interest applied to judgments. This is taxable income. A judge will usually include an interest provision on the damages you receive until the insurance provider or the defendant can pay the value. That interest is income you must report.
All of these financial aspects play a role in your ability to recover damages that cover all of the losses you will suffer. Our legal team has recovered millions of dollars in settlements. Seek the help of a Pikeville personal injury attorney in every case.