In today's world, wherever you turn you may run into a tax - income tax, property tax, sales tax, gas tax…… and the list goes on.    A question that needs to be answered for our personal injury clients is whether Uncle Sam wants his cut!  Like many "law answers" -- it depends.

The good news is most of our clients do not pay income tax on their personal injury award.   The reason is that most clients DO NOT take any of the health care costs as itemized deductions.  If you did take a deduction for health care costs, then you need to complete line 21 of Form 1040 and report that portion of the award as income.

Any amount of the award that is attributed emotional distress is not taxable.  I guess the IRS knows taxes alone give people distress so they stay away from this type of personal injury award.

What is taxed is the money you recover for lost wages or lost profits.  Thus, you need to report recovery for lost wages on line 7 of Form 1040.

Whether you recover punitive damages is dependent upon the state you reside in.  For example, Nebraska does not allow punitive damages.  In states that allow punitive damages, the federal government will likely tax some of your money.  Punitive damages would be reported to the IRS on line 21 of Form 1040.