Asbestos & Mesothelioma Law Blog
Receiving a mesothelioma diagnosis is devastating, and not just because of the medical challenges. It is also because of the financial strain that it can bring. Fortunately, patients diagnosed with mesothelioma are entitled to file a lawsuit against the responsible parties to seek justice and compensation for asbestos exposure. One common question individuals pursuing compensation for mesothelioma ask is whether the settlement amount is subjected to taxation. Let’s explore the tax implications of mesothelioma settlements.
Are Mesothelioma Settlements Taxable?
The question of whether mesothelioma settlements are subject to taxation depends on the kind of damages awarded. However, according to Internal Revenue Service (IRS) rules, they are generally not taxed. This is because compensation for physical injuries or sickness is not taxable under federal law. Therefore, settlements or awards received for a mesothelioma diagnosis typically follow this rule.
However, while compensation for physical injuries is usually tax-free, some components of a mesothelioma settlement may be taxable. If a portion of the settlement is allocated to punitive damages, interest, or lost wages, this may be considered taxable income. Since tax laws can be complex, consulting with a legal professional experienced in mesothelioma settlements can provide crucial guidance on how the different components of your compensation may be affected.
How Different Types of Mesothelioma Compensation Are Taxed
As mentioned earlier, whether a mesothelioma settlement is taxable depends on how the settlement is structured. Here is a breakdown of different types of compensation and their tax implications:
Compensation for Physical Injuries or Illness
Under U.S. tax laws, settlements for physical injuries or illness are tax-free. Since mesothelioma is classified as a physical illness, compensation for medical bills, pain and suffering, and emotional distress related to the disease is generally non-taxable.
Lost Wages
If a settlement includes reimbursement for lost wages due to missed work or the inability to work in the future, this portion may not be taxed because the lost wages were caused by a personal physical injury.
Punitive Damages
Punitive damages are awarded when the defendant’s conduct is considered reckless or grossly negligent. Since punitive damages are considered a punishment rather than a direct reimbursement for the plaintiff’s harm, they are taxable and must be reported as income on tax returns.
Interest on the Settlement
Sometimes, a settlement may include accrued interest in cases where compensation is delayed. This interest is considered taxable income and must be reported on a tax return per federal law.
How About Payments From Mesothelioma Trust Funds?
In some cases, mesothelioma compensation is received from trust funds established by companies responsible for asbestos exposure. Like traditional settlements, trust fund payments are taxed depending on their purpose. If the funds compensate for physical injuries, pain, and suffering, they are typically tax-free. However, if the payment includes punitive damages or accrued interest, these portions may be taxable per the IRS tax guidelines.
Given the complexity of tax implications on mesothelioma settlements, it is advisable to consult a tax expert to minimize your tax obligation and a mesothelioma attorney to help secure maximum compensation.
Nationwide Mesothelioma Lawyers
If you or a loved one were diagnosed with mesothelioma, contact our office to speak to one of our experienced nationwide mesothelioma attorneys about your situation. Our office can help investigate your case and determine if compensation can be sought from negligent parties to help pay for your medical treatment.