Are Mesothelioma Lawsuit Settlements Taxable?

Mesothelioma victims may have to pay taxes on the money they receive from a settlement. Generally, the money awarded for personal injury and medical bills is not taxed, whereas punitive damages (to punish those being sued) and lost wages are taxed. Settlement taxes vary in each case, so victims should work with a mesothelioma lawyer to determine how taxes may impact their compensation.

Are Mesothelioma Settlements Taxable Income?

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

When a mesothelioma lawsuit is settled, victims of asbestos-related diseases are usually awarded financial compensation for one of two reasons.

Money is typically awarded for:

  • Personal injury: This compensation is given to mesothelioma victims to pay for medical bills, protect their family’s financial security, and cover for other disease-related expenses. According to the U.S. Internal Revenue Service (IRS), personal injury awards are not taxable.
  • Punitive damages: This compensation is awarded to punish the manufacturers of asbestos-containing products. The American Bar Association (ABA) notes that punitive damages are always taxable.

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 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.

Quick Facts About Mesothelioma Settlement Taxes
  • Tax codes and laws 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.
  • Mesothelioma lawsuits award money for several reasons, so some of a settlement may or may not be taxed.

Determining which elements are taxed in a mesothelioma settlement can be confusing and hard to understand without legal help. Thankfully, mesothelioma patients can work with an experienced lawyer to learn how taxes may affect their settlements.

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Taxable Mesothelioma Compensation

There are several portions of mesothelioma compensation that are considered taxable income. 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:

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

Learn more about the taxable portions of mesothelioma compensation below.

Punitive Damages

In some situations, courts may order manufacturers of asbestos-containing materials to pay punitive damages to victims. This is because these companies knew the mineral was deadly but continued to use it to make a profit.

According to the IRS, all punitive damages should be reported as “Other Income” on a 1040 form when filing taxes.

Attorney 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 small percentage of the compensation awarded at the end of the case rather than charging by the hour.

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

For example, 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 compensation won is completely taxable.

Lost Wages

Mesothelioma victims that were diagnosed while they were in the workforce generally have to stop working or retire while they undergo mesothelioma treatment. These individuals may receive compensation to cover their loss of income.

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

Other Taxable Compensation

There are several other factors that can affect whether parts of a mesothelioma settlement may 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 taxed at the same rate that 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 Compensation

There are several portions of mesothelioma settlement compensation that may not be taxable.

Non-taxable forms of compensation can include:

  • Emotional distress
  • Personal injury damages
  • Medical expenses
  • Wrongful death damages

The average cost to treat mesothelioma is $400,000. Mesothelioma lawyers will typically seek to win non-taxable compensation to cover as much of these expenses as possible and secure additional compensation for the victim’s pain and suffering.

Learn more about the non-taxable portions of mesothelioma compensation below.

Personal Injury

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

A lawyer will prove this by presenting medical records and other documents that show the victim developed mesothelioma and is now physically ill due to the negligence of the manufacturers. Had the manufacturers not made and sold asbestos-based products, the victim wouldn’t have gotten sick.

Medical Expenses

The IRS notes that medical expenses count towards a victim’s personal injury costs. Therefore, medical treatment costs for emotional and physical injuries are usually non-taxable, according to the ABA.

Medical expenses to treat mesothelioma may include:

  • Chemotherapy
  • Doctor visits
  • Physical therapy
  • Psychologist or counselor visits
  • Radiation
  • Surgeries
  • Other treatments

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 claim can be filed by spouses, children, family members, or anyone representing the estate of someone who died from mesothelioma.

According to the IRS, money from a wrongful death lawsuit may or may not be subject to taxes and can depend on state laws.

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.

Emotional Distress

Whether or not emotional distress is taxable is a complex subject matter. 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 – but there are no guarantees.

Is Mesothelioma Workers’ Compensation Taxable?

Workers’ compensation is a type of insurance that provides money to 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 usually awards mesothelioma victims with more compensation than a workers’ compensation claim – even when taxes are deducted. Mesothelioma lawyers usually advise that it is not worth the time or energy to file a worker’s compensation claim with a former employer.

Mesothelioma lawsuits will be filed against asbestos manufacturers and will not be filed against the companies a victim worked for in most cases. Like their employees, 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. Mesothelioma attorneys can determine what options will be best for you and recommend other forms of compensation, such as asbestos trust fund claims in VA benefits in addition to filing a lawsuit.

Learn more about these compensation options by downloading our free Mesothelioma Guide today.

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Mesothelioma Settlement Compensation Tax Variables

There are different circumstances that can impact taxes and the overall value of a mesothelioma claim. Some of these factors include the jurisdiction of the case and the state the victim lives in.

Learn more about tax variables for mesothelioma compensation below.

Compensation and Income Tax

There are federal, state, and local income tax codes. Federal tax codes apply the same rules to every claim, whereas 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 income tax must be paid to the city, town, or county in which someone lives.

Other Compensation Tax Variables

Besides varying local and state tax variables, there are a few other factors that may affect mesothelioma lawsuit settlement taxes.

Some of 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 to lower the taxes they owe.

With the help of an experienced mesothelioma lawyer, victims can determine all the possible variables that may affect their compensation and tax payments.

Find an Experienced Mesothelioma Attorney

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.

Working with a mesothelioma attorney can ensure you avoid any tax issues and receive the most amount of money from your settlement.

Experienced mesothelioma attorneys can:

  • Access databases of asbestos cases to build and support your claim
  • Do the legal heavy lifting so you can focus on healing
  • File lawsuits correctly and within the statute of limitations
  • Understand federal, state, and local tax laws

Get a free legal consultation today to see if you are eligible to win financial compensation through a mesothelioma lawsuit.

Mesothelioma Lawsuit Taxable Settlements FAQs

How much compensation do you get for mesothelioma?

The average mesothelioma claim awards anywhere between $1 million and $1.4 million.

The amount of compensation won in a mesothelioma lawsuit can vary based on several factors, including whether some of the money is considered taxable income.

How long does it take to settle a mesothelioma case?

Some mesothelioma claimants are awarded compensation in as little as 90 days.

Mesothelioma lawsuit timelines can differ depending on your case. Getting a free legal consultation with an experienced attorney can give you a better idea of when you may receive compensation.

Are proceeds from a mesothelioma lawsuit taxable?

It depends. Although every case is different, damages related to personal injury are non-taxable and punitive damages are taxable.

There are several other portions of mesothelioma lawsuit settlement compensation that may be subject to taxes. Get a free legal consultation to see if you are eligible for mesothelioma compensation.

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.

5 references
  1. Internal Revenue Service. Lawsuits, Awards, and Settlements Audit Techniques Guide. Retrieved from https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf
  2. Punitive damages. Retrieved September 29, 2021, from https://www.law.cornell.edu/wex/punitive_damages
  3. Shechtman, D. Tax Aspects of Litigation Awards and Settlements. Retrieved September 29, 2021, from https://www.philadelphiabar.org/WebObjects/PBAReadOnly.woa/Contents/WebServerResources/CMSResources/TaxAspectsofLitigation.pdf
  4. State and local taxes. Retrieved September 29, 2021, from https://www.usa.gov/state-taxes
  5. Wood, R. W. (2017, April 27). Ten Rules Every Lawyer—and Client—Should Know about Taxes on Legal Settlements. Retrieved September 29, 2021, from https://www.americanbar.org/groups/business_law/publications/blt/2017/04/05_wood/

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