People diagnosed with mesothelioma may be entitled to financial compensation through a mesothelioma settlement. Generally, money earned from a mesothelioma lawsuit settlement is exempt from tax liability. However, some taxes may apply depending on the details of the agreement or the jury's verdict. The United States Internal Revenue Service (IRS) is responsible for taxing income, including some types of income granted by the resolution of a lawsuit.
Under Section 104 of the IRS code, the same taxes apply to settlements granted before a trial begins and to compensation for the jury's verdict. Generally, lawsuit settlements granted for physical injury or illness (such as mesothelioma) are tax-exempt. Personal injury lawsuits are usually exempt from taxation, as are wrongful death settlements. These cases compensate plaintiffs for the consequences of their cancer diagnosis, such as lost wages, medical costs, and travel expenses.
Tax Code, Punitive Damages Are Taxable. Unlike compensatory damages that reward plaintiffs for injuries, punitive damages penalize companies for their actions. A court may also award punitive damages in addition to compensatory agreements to discourage future corporate negligence. Some tax laws allow a portion of punitive damages not to be taxable.
Another part of your agreement that could be taxed includes aggregate settlement amounts for “emotional distress” or “mental distress”. However, Section 104 only protects from taxes settlements of “personal physical injury or physical illness”. While patients suffer many physical effects of emotional distress (such as the physical effects of depression and anxiety), this part of a settlement is still taxable. A common form of tax liability for mesothelioma settlements is taxes due on interest.
Your settlement may accrue interest while it is being processed. In addition, if you choose to receive settlement payments instead of a lump sum, your agreement is likely to earn interest. Interest is taxable regardless of the type of statutory asbestos claim that has been filed. The IRS taxes liquidation and investment interest in a similar manner.
In most cases, mesothelioma lawyers work with contingency fees. In this case, plaintiffs don't have to worry about paying a withholding fee or other upfront costs when signing a contingency fee contract with an asbestos lawyer. Instead, your lawyers deduct your payment from the settlement total. Consult your mesothelioma lawyer or a certified tax professional for more information on what you need to file taxes after a settlement.