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Your personal injury case has concluded at last. Now it’s time to finalize and accept your settlement.

But do you know the best way to handle it? Although the specific terms of every settlement vary from case to case, some fundamentals will help you understand the legal and financial implications of your agreement—and help you avoid tax complications.  Of course, your personal injury attorney will help you navigate the final settlement process.


  1. Review your original draft settlement agreement before consenting to anything—either in writing or verbally. Then, talk to your attorney regarding the advantages and shortcomings of your final agreement., and sign it only if you both believe it gives you the most advantageous deal. Since there are usually some compromises involved in a settlement, you want to make sure you are satisfied with it.
  2. Sign the release form.  Once both parties sign the form, your compensation check can be released.
  3. Wait for the other party to sign the final settlement agreement. Once signed, your attorney will legally finalize it and ask the court to approve it for the record. This approval will close litigation.  You also can choose to submit your settlement to a judge, who can issue a court order that will make the agreement enforceable by law. This will help prevent future disputes related to your original lawsuit. In addition, your attorney may ask to keep your settlement confidential.
  4. Your settlement may involve specific behavior or policy requirements between parties. Confirm with your attorney that the other party has carried these out satisfactorily. If you learn that this is not the case, ask your attorney to contact the other party to request compliance. But avoid emotional responses that might re-open old wounds and delay final settlement.
  5. Allow your attorney to manage your funds—both those due to your from your settlement, and also any payment s you may owe per the agreement. Note that your attorney will first deduct his or her fees out of your settlement check before you can obtain your net award.
  6. Open a second bank account for these monies if you don’t already have one. Use this account in which to deposit your compensation. Think ahead about tax reporting and ask your attorney for a copy of the attorney’s total settlement fees.
  7. Obtain an Internal Revenue Service (IRS) Form 1099-MISC (click on IRS for details.) This is the form you need for reporting your compensation. Review IRS and state guidelines regarding exactly how to report your award on your tax returns. Make sure to report this income accurately, since the IRS is aware that in the past, many unreported settlements  have gone untaxed.
  8. Ensure that you set aside enough funds to pay taxes due to the federal or state government. Note, however, that not all settlements are taxable. Most that involve punitive damages or non-physical recovery are taxable. However, personal injury settlements usually do not include punitive damages because they are difficult to calculate.  If you are unsure about your tax liability, consult a tax professional.
  9. Complete and file Form 1099-MISC at tax time.






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