Are Mesothelioma Settlements Taxable Income?

Mesothelioma is a serious type of cancer that could lead to years of hospital visits, doctor’s appointments, surgeries, chemotherapy and treatments. The medical costs alone related to mesothelioma can be immense. Luckily, victims with mesothelioma may qualify for financial compensation for their medical bills and other losses, including personal pain and suffering. If you qualify for a settlement, find out whether you will need to pay taxes on your award.

In General, Settlements Are Nontaxable

The average settlement value for a mesothelioma claim is $1 to $1.4 million. The average trial award is about $2.4 million. Taxation on such a large award could be considerable. For the most part, however, a personal injury settlement – including one for mesothelioma – will not be taxable. You will generally not have to pay taxes on any general or special damage awards under federal tax laws.

A general damage award reimburses you or your family members for losses anyone in your position would generally experience, such as physical pain, discomfort, chronic pain, emotional distress, mental turmoil, depression, anxiety, lost quality of life, diminished enjoyment of life, grief and loss of consortium. Special damages pay for losses related to your mesothelioma case specifically, including the exact costs of past and future medical care, lost wages, lost future capacity to earn and legal expenses.

The Internal Revenue Service (IRS) states that special and general damages for a physical injury or illness are typically nontaxable. Mesothelioma is a physical sickness, making it eligible for nontaxation. You will not need to list your mesothelioma settlement as earned income for the tax year unless an exception applies to your case. Exceptions exist for punitive damages and some special/general damages, depending on the circumstances. One exception, for example, is if you sought damages for emotional or mental suffering not connected to a personal physical illness. You will owe taxes on noneconomic damages not related to a physical illness.

Punitive Damages Are Taxable

Special and general damages are both compensatory awards. The courts grant plaintiffs compensatory awards to reimburse them for losses related to the injury or illness in question. Punitive damages are another type of monetary award a plaintiff could receive during a personal injury lawsuit. Punitive damages serve to punish the defendant instead of to reimburse the plaintiff. According to the IRS, punitive damages are taxable. You must report any punitive damage award received in a mesothelioma settlement as Other Income on line 21 of Form 1040, Schedule 1 come tax time.

If You Deducted Medical Expenses, Your Settlement Is Taxable

Many mesothelioma patients deal with medical bills for years before finally receiving a settlement. If in past years you listed your health care expenses as itemized deductions on your tax documents, you will have to pay taxes on them now. You cannot double-dip: receive money back for your medical costs by listing them as deductions and keep 100% of the settlement amount granted for your mesothelioma medical care. If you deducted mesothelioma expenses in any prior year to the extent that you received a tax benefit, you must list that same amount as income on your taxes this year.

Taxation Is a Complex Issue

Compensation for patients with asbestos-related illnesses may come from defendants who exposed the victim to asbestos or from one of the many national trust funds for mesothelioma patients. Either way, it can be difficult to work through the matter of taxation after receiving a settlement for mesothelioma. Settlement taxation can depend on a few different factors, such as your previous tax documents and the damage categories awarded.

The best way to properly complete your taxes as the recipient of a mesothelioma settlement is to work with a certified tax professional and a New York mesothelioma lawyer. An attorney can organize your mesothelioma settlement from the beginning to help you minimize your tax obligation and correctly pay what you owe come tax time. A lawyer can also help you maximize your financial recovery as someone with mesothelioma. Meanwhile, a tax professional can help you correctly file and pay your state and federal taxes, even with complicated factors such as a legal settlement.