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  • Writer's pictureTom Fowler

Do You Have to Pay Taxes on a Personal Injury Settlement in Iowa?

In the aftermath of a personal injury claim, not many people talk about what happens to the settlement money claimants are awarded. One of the concerns accident victims have is whether their compensation will be taxed.

It's important for claimants to understand exactly what will happen to their settlement money before they receive it so that they are not met with any nasty surprises.

Are Personal Injury Settlements Taxable?

Are Personal Injury Settlements Taxable?

Understandably, one of the questions victims often have when pursuing a personal injury claim is, "Is a personal injury settlement taxable?"

The truth is that compensation awarded in a personal injury case is not typically subject to taxation. The amount received for medical expenses is generally not seen as income but rather as an amount received for paying medical bills.

However, since personal injury claims encompass different types of damages, some parts of the settlement proceeds may be subject to taxation.

Non-taxable Income from a Personal Injury Settlement

The following compensatory damages awarded in a personal injury case are considered non-taxable:

  • Medication

  • Surgeries

  • Occupational therapy

  • Medical tests

  • Hospitalizations

  • Psychological therapy

  • Doctor's visits

  • Assistive devices

  • Physical therapy

  • Future medical treatment

Keep in mind that emotional distress may be considered non-taxable if it is linked to physical injuries. Since this will depend on the details of the case, it's best to talk to a personal injury attorney to learn more about the tax implications.

Taxable Income

Unfortunately, a portion of the settlement amount is indeed taxable. Here are some of the compensatory damages that claimants must pay federal taxes on:

  • Pain and suffering

  • Lost income

  • Property damage

  • Punitive damages

Lost wages are considered taxable income because they are intended to compensate for the gross income that a victim would have lost as a result of their injury. Therefore, since he or she would have had to pay taxes on that amount anyway, there are tax implications.

In addition, any punitive damages that you are awarded following a physical injury will also be subject to taxation. Punitive damages are awarded by the court to punish the party at fault financially for a wrongful act. Tom Fowler Law can explain what special damages in personal injury are.

Other Deductions

In addition to federal tax, there are also other deductions that may be made from your personal injury settlement.

Legal Fees

Most personal injury lawyers work on a contingency fee basis, which means that claimants don't pay any upfront legal fees. However, when they receive settlement proceeds, a portion will be deducted to compensate the lawyer for his or her work.

This is typically 33 percent of the final amount, but it's best for victims to discuss the matter further with a personal injury attorney to negotiate a percentage.


The truth is that accidents can put victims under tremendous financial strain, and a verdict can take years to be reached. However, medical bills must still be paid, and claimants often spend time off work while recovering from their injuries, worsening the situation.

In such cases, many opt for a loan against their personal injury settlement. If the case is likely to receive one, a lawyer can provide motivation to ensure that their client receives a loan and pays it back once they receive compensation.

However, when the settlement amount is paid, it will be time to pay back the money that was borrowed.

Are Legal Fees Tax Deductible?

At the end of the year, when drawing up tax returns, it's important to list tax deductibles. However, legal fees are not counted as tax deductible. According to the IRS, legal fees incurred for personal issues may not be included in a claimant's itemized deductions.

How to Learn More About Taxation and Personal Injury Settlements

Because every case is unique with its own facts, it's important for victims to reach out to a reliable personal injury attorney to learn more about the possible tax implications for their settlement amounts. Personal injury lawyers in Des Moines IA have extensive experience working with settlements and can offer great insight.

Victims can also reach out to a tax professional for assistance with managing their taxes.

Is It Possible to Save Money on a Settlement by Avoiding Legal Representation?

Having to include certain damages on a tax return may not feel good, which is why many like to think of ways to save on their settlements. However, avoiding legal assistance from the outset is never a good idea. That's because a lawyer can mean the difference between winning and losing the case.

Personal injury attorneys not only provide sound legal advice but also conduct an investigation of the case, hiring experts when necessary to ensure that the victim has solid proof. Without this detailed and meticulous approach, it's often easy for the defense to get away with it and the plaintiff to walk away with nothing.

Moreover, it's important to remember that a personal injury claim is the only chance a victim will have at obtaining compensation for their losses, so they cannot afford to go in without the proper legal assistance.

Tax Liability Should Not Stop Victims from Pursuing a Personal Injury Settlement

Tax Liability Should Not Stop Victims from Pursuing a Personal Injury Settlement

The reality is that most personal injury settlements are not tax-exempt since they include compensation for lost wages and property damage. However, this should not deter victims from pursuing restitution for their injuries and/or physical sickness caused by an act of negligence or wrongdoing.

Before making the decision on whether to pursue a claim or not, it's advisable for victims to seek legal advice from a trusted legal representative with many years of experience. Tom Fowler Law has secured millions of dollars in compensation and will stop at nothing to ensure that claimants get fair settlement amounts to cover both past and future damages.

Need Help Filing a Personal Injury Lawsuit?

Now that you have the answer to the question, "Do you have to pay taxes on a personal injury settlement in Iowa?" it's time to get started with your claim. Tom Fowler Law can also assist with other questions like Do you have to pay your medical bills from a personal injury settlement in Iowa?

Whether they have been injured in a car accident, work-related incident, or dog bite that was not their fault, Iowa victims can turn to a reliable personal injury lawyer for sound legal advice and aggressive and persistent representation.

They can contact Tom Fowler Law to schedule a free case evaluation.

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