Are Mesothelioma Lawsuit Settlements Taxable?

Mesothelioma victims may have to pay taxes on the money they receive from a settlement. For example, money awarded to pay for a victim’s injuries or medical bills is not normally taxed, however, punitive damages (designed to punish those being sued) are usually taxable. Settlement taxes vary in each case, so victims should work with a mesothelioma lawyer to determine how taxes will impact their compensation.

Are Mesothelioma Settlements Taxable Income?

Some of the money awarded in a mesothelioma settlement is considered taxable income, while some of it is not.

When an asbestos lawsuit is settled, victims are usually awarded financial compensation for one of two reasons, which affect whether it will be taxed.

Money is typically awarded for:

  • Personal injury compensation: Personal injury awards allow mesothelioma victims to cover their medical bills, protect their family’s financial security, and help pay for any other expenses associated with this disease. Personal injury awards are not taxable, according to the U.S. Internal Revenue Service (IRS).
  • Punitive damages: Punitive damages are not awarded to cover a victim’s injuries but to punish manufacturers of asbestos-containing products. The American Bar Association (ABA) notes that punitive damages are always taxable, with no exceptions.

There are some exceptions to these rules. For example, if a victim’s medical expenses were deducted on their tax return before a settlement, they may have to pay taxes on some of the money they receive.

There are many other individual factors that affect taxes and settlements, and it is hard to know exactly how these factors will impact each case without legal help.

Victims can work with an experienced lawyer to learn how taxes may affect their mesothelioma settlements. These lawyers can make the legal process easier and help victims receive the most compensation possible for their case.

Quick Facts About Mesothelioma Settlement Taxes

  • Tax codes and laws, including those that affect settlements, are managed and enforced by the IRS.
  • Both settlements and trial verdicts are taxed in the same manner, according to the ABA.
  • Federal, state, and local laws may all affect how mesothelioma settlements are taxed.

Determining Mesothelioma Lawsuit Settlement Tax

Mesothelioma lawsuits award money for several reasons, so portions of the money a victim receives may or may not be taxed.

Mesothelioma settlements award money for:

  • Liability of the manufacturers of asbestos products
  • Loss of income
  • Medical expenses
  • Pain and emotional suffering
  • Travel expenses
  • Other factors

Personal injury awards (i.e., for medical expenses) are tax-exempt, while other awards (such as loss of income) are taxable. One case may award more personal injury damages than punitive damages, while another may do the opposite.

Each case is different, so it is important for mesothelioma victims to work with a lawyer to determine how much of their settlement may be taxed.

Taxable Mesothelioma Settlement Compensation

Any portion of mesothelioma compensation that does not directly relate to the victim’s injuries may be subject to taxes.

Taxable forms of mesothelioma compensation can include:

  • Punitive damages
  • Attorney’s fees
  • Lost wages
  • Other factors

Each of these factors is taxable for different reasons.

Punitive Damages

Courts may order manufacturers of asbestos-containing products to pay punitive damages to victims of asbestos exposure since these companies knew the mineral was deadly but continued to use it.

Any and all punitive damages should be reported as “Other Income” on a 1040 form when submitting taxes, according to the IRS.

Attorney’s Fees

Attorney’s fees may impact the overall value of a mesothelioma settlement depending on how much taxable compensation is awarded.

Most mesothelioma lawyers work on a contingency basis, meaning it costs nothing upfront to work with them. These lawyers take a portion of the overall compensation at the end of the case rather than charging by the hour.

Yet according to a 2005 Supreme Court decision, plaintiffs (those who file a lawsuit) will be taxed as if they received 100% of the money from a lawsuit before the lawyers’ fees are taken out, if the money they recover is considered to be income.

So, if a plaintiff receives $100,000 from a case — and their lawyer takes one-third of the winnings — the plaintiff will still be taxed as if they received $100,000 if the case is totally taxable, according to the ABA.

Lost Wages and Profits

Those diagnosed with mesothelioma while they are working usually have to stop working or retire while they undergo invasive treatments and/or receive palliative care. In these cases, they may receive compensation to cover their lost wages.

According to the IRS, settlement awards for lost wages are considered taxable income because they essentially replace what the victim would have earned if they were working.

Other Taxable Compensation

Additional factors may determine whether or not settlement money can be taxed.

These factors include:

  • Interest: All interest that accumulates while settlements are being processed are subject to tax, according to the ABA.
  • Pension Rights: Settlements that include pension rights are taxable at the same rate any other pension income would be taxed.

A mesothelioma lawyer can help determine what other financial awards may be subject to taxes in each case.

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Non-Taxable Mesothelioma Settlement Compensation

A few different forms of mesothelioma settlement compensation are not taxable.

Non-taxable forms of compensation include:

  • Personal injury damages
  • Medical expenses
  • Wrongful death damages

Mesothelioma can cost over $400,000 to treat, so victims’ lawyers typically try to get non-taxable compensation to cover as much of these expenses as possible and secure additional compensation for the victims’ suffering.

Personal Injury

In order to receive tax-free personal injury compensation, a lawyer must prove that the victim was physically harmed, according to the ABA.

Mesothelioma victims can use their medical diagnosis and confirmation of symptoms to show they are physically ill. A mesothelioma lawyer can gather medical documentation from the victim’s health care team as present it as evidence during the lawsuit.

Medical Expenses

The IRS notes that medical expenses count toward the victim’s personal injury expenses. As a result, medical treatments for both physical and emotional injuries can be covered tax-free, according to the ABA.

Medical expenses may include:

  • Chemotherapy and radiation
  • Doctor visits
  • Psychologist or counselor visits
  • Physical therapy
  • Surgeries

That being said, medical expenses may be taxed in some cases. This normally occurs if the medical expenses were deducted on a tax return to a victim’s benefit before their lawsuit was settled, according to the ABA and IRS.

Wrongful Death

A wrongful death lawsuit can be filed by anyone representing the estate of someone who died from mesothelioma. Most often, these lawsuits are filed by family members or relatives of the deceased. According to the IRS, money from a wrongful death lawsuit may or may not be subject to taxes, depending on the state.

Some states classify wrongful death compensation as both punitive damages and personal injury damages, while others will award all wrongful death compensation as punitive damages.

In states where wrongful death compensation is only considered punitive damage, it will be exempted from taxes, unlike other punitive damages.

Mesothelioma Workers’ Compensation and Taxes

Workers’ compensation is a form of insurance that helps workers who got injured or sick on the job. A workers’ compensation claim due to personal injury or illness cannot be taxed.

However, a mesothelioma lawsuit can usually award mesothelioma victims with more compensation even if some taxes are taken out. It’s usually not worth the time or energy to file a worker’s compensation claim with a former employer.

Mesothelioma lawsuits will not typically be filed against the companies a victim worked for. Like their employees, these companies were tricked into believing that asbestos-containing products were safe to use by manufacturers.

In most cases, filing a mesothelioma lawsuit is a better option for victims. Consult a mesothelioma attorney to learn more.

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Mesothelioma Compensation Tax and Emotional Distress

Emotional distress is a complex grey area when it comes to mesothelioma settlements and taxes. According to the IRS, emotional damages are only free from taxes if they directly stem from the victim’s injuries.

Since mesothelioma is almost always fatal, it may be possible for victims to recover tax-free damages for emotional distress as part of a settlement. However, there are no guarantees.

The best way to determine if emotional compensation is tax-free is by working with a skilled mesothelioma lawyer.

Mesothelioma Settlement Compensation Tax Variables

Different circumstances, including the jurisdiction of the case and where the victim lives, can impact taxes and the overall value of a mesothelioma claim. Get a breakdown of important factors below.

Compensation and State Income Tax

There are federal, state, and local income tax codes, and while federal codes apply the same rules to each lawsuit, state and local codes can vary.

For example, 43 states require residents to pay personal income tax, but the remaining seven do not. Local laws can also affect how much (if any) income tax must be paid to the city, town, or county in which someone lives.

Other Compensation Tax Variables

Outside of varying local and state laws, there are a few other factors that may affect mesothelioma settlements and taxes.

These factors include:

  • Pre-settlement agreements: The plaintiff’s lawyers can work with the defendant’s lawyers to prevent unnecessary taxation on a settlement, according to the ABA.
  • Tax deductions: Victims may be able to deduct medical expenses and other costs of living, allowing them to lower the taxes they have to pay.

With legal help, victims can determine all the possible variables that may affect their compensation and tax payments.

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According to the ABA, victims should work out a tax deal before their lawsuit is finished in order to maximize the compensation they may receive.

For a better shot at avoiding tax issues — and receiving the most amount of money for your claim — you should work with a mesothelioma attorney.

Experienced mesothelioma attorneys:

  • Can access databases of research related to the asbestos industry to build claims
  • Do the legal heavy-lifting so you can focus on healing
  • File lawsuits correctly and on time
  • Understand federal, state, and local tax laws

To learn more about how a mesothelioma lawyer can help you get the most from a settlement, download our free mesothelioma guide today.

Mesothelioma Support Team
Melissa Crowe Schopfer, Simmons Hanly Conroy AttorneyReviewed by:Melissa Crowe Schopfer

Shareholder, Simmons Hanly Conroy

  • Fact-Checked
  • Legal Editor

Melissa Crowe Schopfer is a shareholder at Simmons Hanly Conroy. Over the past 10 years, Melissa has worked on over 500 cases and recovered more than $100 million in settlements and trial verdicts on behalf of her clients. She has represented families impacted by mesothelioma and asbestos-related diseases in almost every state.

Mesothelioma Hope was founded by a team of advocates to educate people about this aggressive form of cancer. Mesothelioma affects thousands of people each year. We help give hope to those impacted by mesothelioma.

View 6 References
  1. Cornell Law School Legal Information Institute. (n.d.). Punitive damages. Retrieved January 26, 2020, from
  2. Internal Revenue Service. (2011, May). Lawsuits, Awards, and Settlements Audit Techniques Guide . Retrieved January 26, 2020, from
  3. Internal Revenue Service. (2019, December 21). The Agency, its Mission and Statutory Authority. Retrieved January 26, 2020, from
  4. Philadelphia Bar Association. (n.d.). Tax Aspects of Litigation: Awards and Settlements. Retrieved January 26, 2020, from
  5. (2020, January 10). State and Local Taxes. Retrieved January 26, 2020, from
  6. Wood, R. (2017, April 27). Ten Rules Every Lawyer-and Client-Should Know about Taxes on Legal Settlements. Retrieved January 26, 2020, from

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