Fighting for your injury settlement might have been the hard part, but that doesn’t mean your struggle is over. Once tax season comes around, do you know how to report your settlement to the Internal Revenue Service (IRS)? Do you have to report it at all? Making a mistake on your taxes after receiving a settlement could result in serious tax penalties and other consequences. The government has laws about whether settlements are taxable. Here’s what you need to know as a claimant in West Virginia.

U.S. Code Title 26

You’ll find the federal statute on whether settlements are taxable in the U.S. Code, Title 26, Section 104(a). According to this law, the government will not tax damages a claimant receives in a personal injury settlement. This includes both settlement agreement damages and recovery via a lawsuit, as well as lump sum and periodic payments. The statute covers general and special damages, but not punitive damages. This means that while you may have to pay tax on a punitive damage award, the following are tax-free:

  • Medical expenses
  • Costs of surgeries or treatment
  • Temporary or permanent disability costs
  • Disfigurement
  • Property damage
  • Lost quality of life
  • Lost earning capacity
  • Physical pain or sickness
  • Emotional suffering or distress
  • Mental anguish

Punitive damages are those which the courts award in addition to other damages as a way to punish the defendant for particularly negligent or malicious actions. West Virginia currently has no cap on punitive damages in cases that arose before June 8, 2015. Cases after this date are subject to the state’s cap of $500,000 or four times the amount of compensatory damages (whichever is greater). The IRS taxes punitive damages, meaning you must list it as income on your taxes.

Note that the federal government will also tax the portion of your settlement that covers your lost wages or missed time at work because of an accident. Since you would have had to pay taxes on your income were it not for the accident, the IRS believes you should have to pay taxes on them in a settlement. You can request for the division of your settlement receipt into taxable and non-taxable damages for the IRS’s benefit.

How to File Your Taxes After a Settlement

Whether you have to pay taxes on settlement income depends upon your situation and the type of damages you received. Since so many different types of damages, from attorney’s fees to emotional distress, can exist within a single settlement, a yes or no answer is impossible. Instead, you must look at the type of damages in your settlement to determine if they’re taxable or tax-free. A tax professional or a personal injury attorney can help with these issues.

In general, the full amount of your settlement will be non-taxable if it consists only of recovery for physical sickness or injuries, and if you did not take an itemized deduction for injury-related medical expenses in prior years. If this is the case, you will not list the proceeds from your settlement in your income when filing. If, however, you deducted medical expenses relating to your accident in prior years, you will have to pay taxes. You cannot list the expenses as a deduction and keep your settlement tax-free.

You may also have to list your settlement (or portions of it) as earned income if you received payment for emotional distress or mental anguish that didn’t originate from injury or sickness, payment for lost wages or lost profits from a business, interest from a settlement, or punitive damages. Learn more about the federal taxation of settlements from the IRS’s website or talk to an accounting professional or attorney for assistance.

Attorney Timothy Manchin established the Manchin Injury Law Group in 2011 after his law partner of more than 25 years became a West Virginia circuit court judge. His focus is on helping individual clients and entire families victimized by negligent acts.

  • Taylor Downs was easy to talk to (I do not speak the legal language well!) and was very upfront and honest about the entire process of my case. He kept me updated as the case progressed, and answered my relentless questions. The end result was a favorable settlement that I’m not sure could have been any better with anyone else. In short, go see Taylor if you have a case. Don’t be intimidated to go seek his help, he won’t blow your brains out with “legal speak”.


  • Being referred to Taylor was the best thing I could have asked for. Taylor and staff are very easy to talk to. I would highly recommend them to anyone.


  • If I ever have to go through it again I would definetly call Taylor right away. The group was so helpful through my situation and handled everything that needed to be done. They made a stressful situation a stress free situation. With Taylor you dont have to worry about one thing. Definietly would recomend to anyone.

    - TAYLOR G.

  • Efficient, knowledgeable, and friendly.


  • Taylor and Tim helped make a difficult moment in life, a little more bearable. Easy to communicate with and informative. I will absolutely recommend them to everyone.


  • Manchin Injury Law Group, Took care of me when I got into a car accident while I was pregnant. Very scary moment for a first time mom but thankfully Manchin Injury Law Group had my back and treated me great. They made me feel as if I was part of their family. My son is now 7 Months Old and very happy and healthy. I’m very thankful for them for helping me through everything and getting me what we deserved. I 100% would recommend them to anyone. If I ever have an accident again they will be my number 1 phone call!


  • The support given helped me to feel like I was included in my personal injury case every step of the way. I was informed about the entire process throughout. It was amazing how quick the turn around time was and I would definitely recommend Attorney Timothy J. Manchin to anyone!


  • Taylor and Kelly worked hard on my case so I didn’t have to. Thanks guys!


  • Excellent experience dealing with Manchin Injury Law. They were very responsive, professional and easy to talk to. I did my homework before I hired a lawyer after my accident and I am so glad I found Manchin Injury Law Group. If you are injured, give them a call!


  • Taylor and Tim helped make a difficult moment in life, a little more bearable. Easy to communicate with and informative. I will absolutely recommend them to everyone.


  • Kelly and Taylor did all the hard work so that I didn’t have to. They both cared about my circumstance and got me a nice settlement. Taylor knows what he is doing and I felt comfortable with my case in his hands.


  • Great lawyers. They helped me with a West Virginia case.


  • Such a great experience with Taylor and this firm. Thankful for their diligence and their work on our case. Thank you to all!


  • Had a easy and smooth experience with a great attorney so when you go there make sure you ask for Taylor.


  • My experience at the Manchin Injury Law Group was extremely positive, and I would recommend them to anyone who needs a compassionate and experienced lawyer on their side.


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