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Are Medical Malpractice Lawsuit Awards Taxable?

Scissors Cut $100 Bill - Are Medical Malpractice Lawsuit Awards Taxable?

A question we sometimes hear when discussing the prospect of a medical malpractice lawsuit with a client is "Are medical malpractice lawsuit awards taxable?" It is an understandable concern, given that some awards or settlements are significant. If taxable, that could lead to a real burden for many recipients. Fortunately, the good news is that medical malpractice lawsuit awards are generally not taxable, with one very limited exception.

If you have suffered serious harm as a result of medical malpractice, the losses you experience as a result are called, in legal terms, "damages." When you receive a judgment or settlement based on those damages, the judge, jury, and attorneys don't pull those figures out of thin air. They spend a lot of time determining what your damages actually are, and those damages fall into a number of categories. In a medical malpractice lawsuit, you might have damages for pain and suffering, past and expected future medical bills, as well as lost wages for inability to work, both up to the time of your lawsuit and in the future. There may be other damages as well, such as an award to your spouse for loss of companionship due to your injury.

Why Medical Malpractice Awards Generally Are Not Taxable

Let's say you have a jury trial in your medical malpractice case and the jury returns an award of damages to you for medical bills, lost wages, and pain and suffering. The jury is looking to compensate you for something you have lost. The award is not a windfall; it is simply trying to restore you (as much as money can do) to the position you would have been in had you not been injured by malpractice.

To put it another way, you are not profiting from your medical malpractice award. Restoring something that was lost, or was taken from you unjustly, is not considered income for the purposes of federal income tax. The question of whether medical malpractice lawsuit awards are taxable is governed by Section 104(a)(2) of the United States Tax Code. This section states that damages received due to personal injury (which includes medical malpractice) are not taxable as income.

This is true whether the award is the result of a lawsuit that went to trial, or a settlement that took place before a lawsuit was even filed. Likewise, it makes no difference whether the award was in the form of a lump-sum payment or periodic payments; the payments are still not taxable as income.

Alert readers may have noticed that the heading of this paragraph states that medical malpractice awards "generally" are not taxable. That's because there is one category of damages that would be taxable. Lost wages, pain and suffering, and medical bills all fall into a category called "compensatory damages," because, as we said, they are intended to compensate you for a loss.

So-called "punitive damages," however, are not intended to compensate you for your loss; they are intended to punish the person or entity that caused harm to you for intentional or extremely reckless actions. Punitive damages are rarely awarded in medical malpractice cases, simply because doctors do not intend to harm their patients. The vast majority of medical malpractice is caused by negligence—mistakes that don't rise to the level of reckless or intentional harm.

Punitive damages awards, when they happen, can be very large; they must be significant enough to cause economic pain to the party responsible for the harm. Punitive damages are taxable as income to the party receiving them, so if you are in that small group, you should speak with a tax professional as soon as possible.

What You Need to Know About Filing a Medical Malpractice Claim

Now that you know it is very unlikely that a medical malpractice award would be subject to income tax, what should you do? If you think that you have been the victim of medical malpractice, or even wonder if what happened to you is normal, you should contact an experienced Oregon medical malpractice attorney. A consultation is free, and can help you decide whether you have a claim worth pursuing. An experienced attorney also knows how to do the research that can tell you what your claim might be worth, and a law firm that does a lot of medical malpractice work will also have access to the experts whose testimony can help strengthen your case.

You have only a limited amount of time in which to file a claim for medical malpractice. If you do not file within this window, you lose your right to make a claim and recover damages that might be owed to you. Therefore, you should speak with an attorney as soon as possible to decide how to proceed.

If you have questions about medical malpractice awards, we invite you to contact our law office so that we can help you find the answers you need.

Categories: Medical Malpractice

Blog Disclaimer

The information in this blog post is provided for informational purposes only and is not intended to be legal advice. You should not make a decision whether or not to contact a qualified medical malpractice attorney based upon the information in this blog post. No attorney-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a competent medical malpractice attorney licensed to practice in your jurisdiction.

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