The settlement award for many legal cases (i.e., settlements for unlawful termination, property damage, etc.) is considered taxable income. However, for personal injury settlements like those you receive from a birth injury lawsuit settlement are considered tax free for the recipient. This includes compensation for medical expenses (including travel costs to appointments), injury compensation, and emotional damages.
Settlements for personal physical injuries are excluded from taxation under section 104(a)(2) of the Internal Revenue Code, which states that “gross income does not include … the amount of any damages (other than punitive damages) received…on account of personal physical injuries or physical sickness.”
It’s important to know that while the primary settlement will not be taxed, the interest on it may be. This would be the case if you were to receive a large, lump sum payment and invested it or earned interest on it in an account.
However, in the event you receive a structured settlement (payments made to you over a scheduled period of time) the award is 100% tax fee including any growth on the award you receive from investments.
In addition to taxes owed, you will want to explore any tax deductions or tax credits such as medical expense deductions and child and dependent care credits to which you may be entitled.
It’s important to consult with a tax professional at this time to ensure you are paying any taxes you may owe and receiving any tax deductions or tax credits you deserve.
Should you receive a lump sum payment in the form of a large check you’ll want to deposit it in an interest earning account for the short term. This is in lieu of depositing it into a personal checking account until you’ve determined how you’re going to invest it.
It’s important to consult with a financial advisor to decide what type of investment account you want to establish whether you’ve received a lump sum payment or a structured settlement paid out over time. Certain types of investment accounts still allow you access to the money if and when you need it, while still accruing interest.
There are many government assistance programs and benefits available to individuals with disabilities who meet eligibility criteria. Research these programs to learn how to integrate their benefits into your financial settlement plan. Government assistance programs for which you may qualify include:
Additionally, there are many organizations which can offer help, including Cerebral Palsy Foundation (CPF), Children’s Hemiplegia and Stroke Association (CHASA), and the UnitedHealthcare Children’s Foundation (UHCCF).
The cerebral palsy lawyers at Pintas & Mullins are dedicated to helping you achieve financial empowerment through effective financial management of your settlement, including helping you establish a special needs trust and a long-term financial plan to care for your child. With decades of experience helping families like yours, we can help ensure your child is cared for for years to come. Call or text 800-934-6555 or complete our Free Case Evaluation form online to get started today.
Check out our blog for answers to questions you may have with respect to your case.
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