Mesothelioma Lawsuit Settlements Taxability
The average mesothelioma settlement ranges between $1 million and $1.4 million. So how much of that amount is taxable? The Internal Revenue Service (IRS) treats some money awarded in a mesothelioma settlement as taxable income, while some are 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: Personal injury compensation is given to mesothelioma victims to pay for medical bills, protect their family’s financial security, and cover other disease-related expenses. According to the IRS, personal injury awards are not taxable.
- Punitive damages: Punitive damages are compensation 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 deducted medical on their tax return before a settlement, they may have to pay taxes on some of the money they receive.
- Tax codes and laws that affect settlements are managed and enforced by the IRS.
- According to the ABA, both settlements and trial verdicts are taxed in the same manner.
- Federal, state, and local laws may 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 parts 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 settlement amounts.
Overwhelmed? Confused? You’re Not Alone.
If understanding all the tax ramifications of a mesothelioma settlement overwhelms you, you’re not alone, and that’s why it’s vital to work with a top law firm experienced in handling asbestos and mesothelioma cases. They can walk with you through the entire process.
Our featured sponsor and legal partner is Simmons Hanly Conroy, one of the most nationally respected mesothelioma law firms in the country. Let them handle your case to allow you to focus on your health. Get a free consultation from Simmons Hanly Conroy.
Taxable Mesothelioma Compensation Overview
Several portions of mesothelioma compensation are considered taxable income. Any portion of mesothelioma financial compensation that does not directly relate to the victim’s injuries may be subject to taxes.
Taxable mesothelioma financial compensation can include:
- Attorney’s fees
- Lost wages
- Punitive damages
- Other compensation
Let’s look in detail at each of the taxable parts of mesothelioma settlements.
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’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. This structure allows top mesothelioma law firms to offer their services to a wide group of people who may not have the finances to pay for legal representation. These lawyers receive a percentage of the total compensation awarded at the end of the case rather than charging by the hour or requiring up-front payments. This innovative model allows everyday people to have access to representation by the best mesothelioma lawyers and law firms in the country.
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 entirely taxable.
Individuals who receive a mesothelioma diagnosis while in the workforce generally have to stop working or retire while they undergo mesothelioma treatment. These individuals may receive compensation as part of a settlement to cover their loss of income.
As of 2022, the IRS considers settlement awards for lost wages taxable income because they essentially replace the income the victim would have earned if they were still working.
Other Taxable Compensation (Interest & Pension Rights)
Several other factors can affect whether parts of a mesothelioma settlement may be taxed.
These factors include:
- Interest: All interest that accumulates while payments are processed is subject to taxation, according to the ABA.
- Pension rights: Settlements that include pension rights are taxed at the same rate as any other pension income.
A mesothelioma lawyer can help determine what other financial awards may be subject to taxes in each case.
Download our free Questions to Ask Your Mesothelioma Lawyer checklist to get the answers you need when meeting with an attorney to discuss your legal options.
Non-Taxable Mesothelioma Compensation
There are several parts of mesothelioma settlement compensation that are usually not taxable.
Non-taxable forms of financial compensation can include:
- Emotional distress
- Personal injury lawsuit 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 payments for the victim’s pain and suffering.
Learn more about the non-taxable portions of mesothelioma compensation below.
As part of personal injury cases, a mesothelioma lawyer must prove that the asbestos physically harmed the victim to receive tax-free personal injury compensation.
A mesothelioma legal team can prove this by presenting medical records and other documents that demonstrate that the victim developed mesothelioma due to the negligence of the manufacturers.
Simply put, if the manufacturers had not made and sold asbestos-based products, the victim wouldn’t have gotten sick with mesothelioma or another asbestos-related disease (e.g., asbestosis, lung cancer).
The IRS mentions 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:
- Doctor visits
- Physical therapy
- Psychologist or counselor visits
- Other treatments
That being said, medical expenses may be taxed in some cases, such as if medical expenses were deducted on a tax return to a victim’s benefit before their lawsuit was settled, according to the ABA and IRS.
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 depending 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.
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 insurance that provides money to workers who got injured or sick on the job. Due to personal injury or illness, a workers’ compensation claim cannot be taxed.
However, a mesothelioma lawsuit usually awards victims more compensation than a workers’ compensation claim – even when taxes are deducted. Mesothelioma lawyers typically advise that it is not worth the time or energy to file a workers’ compensation claim with a former employer.
Mesothelioma lawsuits are filed against asbestos manufacturers but are not filed against the companies a victim worked for in most cases. Like their employees, asbestos companies misled other companies into believing that it was safe to use asbestos-containing products.
In most cases, filing a mesothelioma lawsuit is the best option for victims. Mesothelioma attorneys can determine which options will be best for you and recommend other forms of compensation, such as asbestos trust fund claims or VA benefits, in addition to filing an asbestos lawsuit.
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 in which the victim lives.
Learn more about tax variables for mesothelioma compensation below.
Compensation and Income Tax
There are federal, state, and local income tax codes. Federal (or national) tax codes apply the same rules to every claim, whereas state and local codes 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 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 learn all the possible variables that may affect their compensation and tax payments.
Chat with our trusted Patient Advocates to learn how to maximize the compensation you may receive.
Find an Experienced Mesothelioma Attorney
According to the ABA, victims should work out a tax deal before their lawsuit is completed to maximize the compensation they receive.
Working with a mesothelioma attorney can ensure you avoid any tax issues and win the most 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
- Advise you on 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
Are mesothelioma lawsuit settlements 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.
What is the average payout for a mesothelioma case?
The average mesothelioma claim awards anywhere between $1 million and $1.4 million.
The financial compensation won in a mesothelioma lawsuit can vary based on several factors, including whether some of the money is considered taxable income.