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Are Personal Injury Settlements Taxable in New York?
Dealing with the aftermath of a personal injury can feel like a lot to handle, especially when you’re worried about finances and taxes. One question that often comes up is, “Are personal injury settlements in New York?” Here’s what you need to know.
Are There Exceptions? When Is a Personal Injury Settlement Taxable in New York?
While most personal injury settlements are tax-free, some exceptions can lead to tax liabilities.
Emotional Distress Without Physical Injury
If you receive compensation for emotional distress without a related physical injury, that portion of your settlement may be taxable. For example, the IRS would likely consider that taxable income if your claim was solely based on emotional pain from a defamatory statement.
Lost Wages and Employment-Related Claims
Compensation for lost wages typically isn’t taxable if it’s part of a personal injury claim. However, they’re taxable if your claim is related to employment issues like wrongful termination or discrimination because those wages would’ve been taxed if you had earned them.
Interest on Settlements
If your settlement includes interest that has accrued from the time of your injury until you receive payment, that interest is taxable, and you’ll need to include it as income when filing your taxes.
Previously Deducted Medical Expenses
If you previously deducted medical expenses from your taxes and later received a settlement that reimbursed those expenses, you must report that amount as income because you got a tax benefit from those deductions.
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