Settlement Tax Calculator
Get a free, personalized report that estimates how much tax you’ll pay as a result of your settlement. It takes less than 2 minutes!
Enter Your Information
Step 1 of 2
Where Should We Send Your Results
Step 2 of 2
Please enter your name and email address so we can email your Settlement Tax Calculator results to you. (You can also see your results on this page.)
🔒 We never share your email or phone number.
SECURE & CONFIDENTIAL
USED BY 10,000+ CLIENTS
ATTORNEYS, CFPs, & CPAs
Settlement Tax Calculator: Your Results
| No Tax Planning | 5-Year Annuity | 10-Year Annuity | 15-Year Annuity | |
|---|---|---|---|---|
| After-Tax Net Amount | $0 | $0 | $0 | $0 |
The table and graph above estimate how much money you will keep from your personal injury settlement in several scenarios.
The first scenario shows how much you’ll keep if you don’t do any tax planning and receive the settlement in a lump sum. The other scenarios show how much you’ll get to keep if you use a structured settlement annuity over a 5, 10, or 15-year period.
Please note that the results displayed on this page show you a rough estimate based on the information you provided.
If you want a free Customized Tax Analysis of your case and information on the settlement tax planning strategies you can use to increase your after-tax settlement recovery, please book a call with us using the button below.
Please watch this short video that explains your Settlement Tax Calculator results.
Personal injury settlements are generally tax-free they are excluded from taxable income under Section 104(a)(2) of the Internal Revenue Code.
A structured settlement annuity is a powerful tax planning tool that can increase the total after-tax net recovery, as well as provide additional advantages:
Larger Total After-Tax Net Recovery: The tax code grants a tax subsidy for structured settlement annuities (they receive special tax treatment). Specifically, funds in a structured settlement annuity accrue interest on a tax-free basis.
As a result, when you receive annuity payments (which include investment growth), you never have to pay income taxes on the payments you receive. This preferred tax treatment increases the total after-tax amount you receive over the life of the annuity compared to a one-time, lump-sum payment.
Long-Term Financial Security: A structured settlement annuity extends your settlement’s financial benefits over time, offering regular, tax-free payments that can provide long-term financial security.
Protection Against Loss: Receiving smaller, periodic payments through an annuity helps manage spending, reducing the risk of quickly depleting your settlement funds and ensuring future needs are met.
Customized Payment Structure: An annuity can provide flexible and tax-free income streams tailored to your specific financial needs and future goals (e.g., you can receive payments for life, payments starting at retirement, etc.).
Protection from Inflation: Annuities can be customized to include inflation protection, ensuring that your periodic payments retain their purchasing power over time, which is not guaranteed with a lump-sum payout.
If there are punitive damages in your case, please note that you will have to pay taxes on 100% of the punitive damages you receive from your personal injury settlement.
If your case has punitive damages, please make sure to book a call because the tax consequences are severe if you don’t do any planning. We can use several strategies to significantly reduce the taxes you pay on punitive damages.
If you want to get your free Customized Tax Analysis, as well as information on several settlement tax planning strategies you can utilize to increase how much of your settlement you get to keep after taxes, please book a call with us by clicking the button below:
The table and graph above estimate how much money you will keep from your discrimination, retaliation, or whistleblower settlement in several scenarios.
The first scenario shows how much you’ll keep if you don’t do any tax planning and receive the settlement in a lump sum. The other scenarios show how much you’ll get to keep after taxes if you use a Structured Settlement Annuity over a 5, 10, or 15-year period.
Please note that the results displayed on this page show you a rough estimate based on the information you provided.
If you want a free Customized Tax Analysis of your case and more information on how a Structured Settlement Annuity can increase your after-tax settlement recovery, please book a call with us using the button below.
Please watch this short video that explains your Settlement Tax Calculator results.
Any settlement you receive from a discrimination, retaliation, or whistleblower lawsuit is taxable to you. Because your settlement is categorized as taxable income, a substantial portion of the settlement is often lost to taxes, leaving you with only a fraction of the total settlement.
Without strategic planning, your settlement could push you into a higher tax bracket, leading to you paying a higher tax rate on not just your settlement but your other income as well. Finding a way to mitigate this tax impact is crucial to keep more of your settlement in your pocket.
A Structured Settlement Annuity can be an invaluable tool in maximizing your after-tax net recovery.
A Structured Settlement Annuity is a powerful planning tool designed to reduce your immediate tax burden and provide long-term financial security.
Instead of receiving your settlement in a single lump sum, you receive it in smaller, periodic payments spread over several years through a Structured Settlement Annuity.
Using a Structured Settlement Annuity has several key benefits:
Lower Tax Bracket: Instead of spiking your income in the year you receive a settlement, using a Structured Settlement Annuity may keep you in a lower tax bracket. If you’re in a lower tax bracket, each payment may be taxed at a lower rate compared to receiving a lump sum.
For example, if you receive a large settlement, opting for a lump sum payment could significantly increase your taxable income for the year, potentially pushing you into the highest tax bracket (e.g., 37% Federal Income Tax Rate).
Instead, suppose you placed the settlement into a Structured Settlement Annuity and received the settlement in equal annual installments of over ten years. In that case, you may be able to keep your taxable income in a lower bracket each year (e.g., 24% Federal Income Tax Rate), increasing how much you get to keep and minimizing how much you lose to taxes.
Tax-Deferred Growth: The funds within the Structured Settlement Annuity grow on a tax-deferred basis. Tax-deferred payments mean you don’t pay taxes on the interest or investment gains within the annuity until you receive the payments.
The total amount of payments you receive from the Structured Settlement Annuity is greater than the lump sum because the funds in the annuity are invested and growing. The compounding effect of this deferred growth can significantly increase the total amount you receive over time.
Stable and Guaranteed Returns: Structured Settlement Annuities offer guaranteed interest rates backed by highly rated insurance companies, providing a stable, predictable growth of your settlement funds. If you were to take a lump sum and invest it, the amount invested would be subject to market risks and volatility.
Protection Against Dissipation: Lump sum settlements can quickly deplete due to poor financial management, impulsive spending, or bad investments. A structured settlement annuity protects against this by providing a steady income stream. A structured settlement annuity protects you from the risk of rapidly depleting your settlement funds, ensuring you have a long-term financial resource.
Protection from Inflation: Annuities can be customized to include inflation protection, ensuring that your periodic payments retain their purchasing power over time, which is not guaranteed with a lump-sum payout.
Every individual’s financial situation is unique. While a Structured Settlement Annuity offers compelling advantages, tailoring it to your needs and future goals is essential.
Book a call with us now to get your free Customized Tax Analysis. Your Customized Tax Analysis will consider your current financial situation, tax bracket, future income projections, and other financial goals.
To see if a Structured Settlement Annuity can increase your after-net net settlement, get your Customized Tax Analysis by booking a free, 15-minute call below:
The table and graph above estimate how much money you will keep from your taxable settlement in several scenarios.
- Scenario 1: This scenario shows how much you’ll keep if you don’t do any tax planning and receive the settlement in a lump sum.
- Scenario 2: This scenario shows how much you’ll keep after taxes if you use a Structured Settlement Annuity only.
- Scenario 3: This scenario shows how much you’ll keep after taxes if you use the Plaintiff Recovery Trust only.
- Scenario 4: This scenario shows how much you’ll keep after taxes if you use both a Structured Settlement Annuity and the Plaintiff Recovery Trust.
Please note that the results displayed on this page show you a rough estimate based on the information you provided.
If you want a free Customized Tax Analysis of your case and more information on how a Structured Settlement Annuity and the Plaintiff Recovery Trust can increase your after-tax settlement recovery, please book a call with us using the button below.
Please watch this short video that explains your Settlement Tax Calculator results.
Unless your settlement is for a personal physical injury, your settlement will likely be considered taxable income.
Because your settlement is categorized as taxable income, a substantial portion of the settlement is often lost to taxes, leaving you with only a fraction of the total settlement.
What’s more, after the Tax Cuts and Jobs Act of 2018, many plaintiffs can no longer deduct legal fees (the main exceptions are discrimination, retaliation, or whistleblower claims).
The inability to deduct legal fees means you may be required to pay taxes on 100% of the gross settlement amount, including the amount you paid to the attorney as the legal fee.
There are two powerful planning tools you can use to reduce your taxes: a Structured Settlement Annuity and the Plaintiff Recovery Trust.
Without strategic planning, your settlement could push you into a higher tax bracket, leading to you paying a higher tax rate on not just your settlement but your other income as well. Finding a way to mitigate this tax impact is crucial to keep more of your settlement in your pocket.
A Structured Settlement Annuity can reduce your tax rate, which allows you to pay less in taxes on the settlement.
Instead of receiving your settlement in a single lump sum, you receive it in smaller, periodic payments spread over several years through a Structured Settlement Annuity.
Using a Structured Settlement Annuity has several key benefits:
Lower Tax Bracket: Instead of spiking your income in the year you receive a settlement, using a Structured Settlement Annuity may keep you in a lower tax bracket. If you’re in a lower tax bracket, each payment may be taxed at a lower rate compared to receiving a lump sum.
For example, if you receive a large settlement, opting for a lump sum payment could significantly increase your taxable income for the year, potentially pushing you into the highest tax bracket (e.g., 37% Federal Income Tax Rate).
Instead, suppose you placed the settlement into a Structured Settlement Annuity and received the settlement in equal annual installments of over ten years. In that case, you may be able to keep your taxable income in a lower bracket each year (e.g., 24% Federal Income Tax Rate), increasing how much you get to keep and minimizing how much you lose to taxes.
Tax-Deferred Growth: The funds within the Structured Settlement Annuity grow on a tax-deferred basis. Tax-deferred payments mean you don’t pay taxes on the interest or investment gains within the annuity until you receive the payments.
The total amount of payments you receive from the Structured Settlement Annuity is greater than the lump sum because the funds in the annuity are invested and growing. The compounding effect of this deferred growth can significantly increase the total amount you receive over time.
The Plaintiff Recovery Trust addresses a significant issue known as the “Plaintiff Double Tax Trap.” This problem arises in taxable lawsuit settlements when a plaintiff must pay taxes on the entire settlement amount, including the portion paid to the attorney as legal fees.
Essentially, without the Plaintiff Recovery Trust, the IRS expects you to pay taxes on the total gross settlement — not just the amount you actually receive after your attorney gets paid their legal fees.
Here’s the crux of the problem: Let’s say you win a $1,000,000 settlement, and your attorney’s contingency fee is 40%, meaning your attorney receives $400,000, and you are left with $600,000.
Without the Plaintiff Recovery Trust, you are still responsible for paying taxes on the entire $1,000,000, not just the $600,000 you actually receive. This unfair tax law can significantly increase your tax liability, unfairly taxing you on money you never received directly.
Furthermore, your attorney also pays taxes on the $400,000 they receive, leading to the same income being taxed twice – hence the term “Double Tax Trap.”
The Plaintiff Recovery Trust solves this issue by ensuring that you, as the plaintiff, are only taxed on the settlement money that you actually receive after attorney fees.
The Plaintiff Recovery Trust prevents the unfair situation where you are taxed on your attorney’s legal fees, aligning your tax obligations more closely with the actual financial benefit you gain from the settlement.
Using the Plaintiff Recovery Trust often doubles (or even triples) how much plaintiffs get to keep in taxable lawsuit recoveries.
A Structured Settlement Annuity stretches your settlement payments over time, potentially keeping you in a lower tax bracket each year and easing your tax burden.
The Plaintiff Recovery Trust specifically addresses the issue of being unfairly taxed on the portion of your settlement that goes to attorney fees, ensuring you’re only taxed on the money you actually receive.
When used together, these tools offer the most significant possible tax savings — maximizing your after-tax income by combining the tax-saving benefits of deferred income with the assurance that you won’t be taxed on legal fees.
Every individual’s financial situation and legal settlement is unique.
Both a Structured Settlement Annuity and the Plaintiff Recovery Trust offer compelling advantages, and it’s vital to see precisely how much these tools can help in your specific situation.
Book a call with us now to get your free Customized Tax Analysis. Your Customized Tax Analysis will consider your current financial situation, marital status, tax bracket, future income projections, and other financial goals — and forecast how much a Structured Settlement Annuity and the Plaintiff Recovery Trust can save you in taxes.
To see how these strategies can increase your after-net net settlement, get your Customized Tax Analysis by booking a free, 15-minute call below:
About the Settlement Tax Calculator
Receiving a settlement can be a complex process, especially when it comes to understanding the tax implications.
That's why we've developed the Settlement Tax Calculator – an innovative tool that provides a customized estimate of the taxes you might owe on your settlement amount based on factors like your State’s income tax rate, attorney’s fees, and more.
More importantly, the calculator also demonstrates how you can significantly increase the amount that you get to keep in your pocket by using some powerful, pre-settlement tax planning strategies.
Whether your settlement is tax-free and you’re looking to grow your settlement tax-free, or if your settlement is taxable and you’re looking to avoid losing a large portion of the settlement to taxes, the Settlement Tax Calculator is an essential first step in planning your financial future post-settlement.
To learn more, check out the Frequently Asked Questions section below.
Frequently Asked Questions
How do I use the Settlement Tax Calculator?
- Click the "Get Started" button above.
- Enter details about your settlement.
- Choose the case type. If you're unsure which "Case Type" your case falls under, please select "Other".
- Select the State that you reside in.
- Enter the estimated total gross amount of your settlement. If you’re unsure of the amount, please enter $1,000,000. While your settlement may not be $1,000,000, using this estimated amount will make it easier for you to see the benefits of the tax planning options available to you.
- Enter your attorney’s contingent fee percentage. If you’re unsure of your attorney’s contingent fee percentage, please enter 40%.
- Click “Go to Next Step”.
- Provide your name and email so we can send the results to you once they become available.
Is my settlement taxable?
Determining whether your legal settlement is taxable involves understanding the nature of the claim and the specific details of your settlement. Generally, the taxability of a legal settlement depends on the "origin of the claim" rule, which means the taxation is based on the underlying reason or cause for your lawsuit. Here are some general guidelines:
1. Personal Physical Injury or Physical Sickness Settlements:
Generally, if your settlement is a compensation for personal physical injuries or physical sickness, it is not taxable. This includes amounts received for medical expenses, pain and suffering, and loss of income due to the physical injury or sickness.
However, punitive damages and interest received are taxable, even if they are part of a personal physical injury settlement.
2. Employment-Related Settlements:
Settlements for lost wages, back pay, or severance pay are typically taxable as ordinary income.
Discrimination, retaliation, or unlawful termination settlements are also taxable.
Whether or not attorney fees are deductible on the plaintiff’s tax return depends on the specific details of each case.
3. Other Settlements (e.g., Professional Malpractice, Defamation, Emotional Distress, Breach of Contract, etc.):
Settlements for other claims, like defamation, breach of contract, professional malpractice, or emotional distress not caused by a physical injury, are usually taxable.
4. Punitive Damages:
Punitive damages are taxable regardless of the nature of the lawsuit.
5. Interest:
Interest on any settlement is typically considered taxable income.
It's important to carefully analyze the specific elements of your settlement to determine the taxation of your settlement.
To learn more about this topic, we’ve prepared a comprehensive overview that can help you determine if your settlement is taxable.
If my settlement is for a personal injury, is it still taxable?
Settlements for personal physical injuries or physical sickness are generally not taxable under Section 104(a)(2) of the Internal Revenue Code.
This means that if your settlement is compensation for a personal physical injury or physical sickness, the amount you receive is typically excluded from your gross income, and you do not have to pay taxes on it.
This tax-free status applies to amounts received for:
- Medical expenses related to the physical injury or sickness.
- Pain and suffering that results from the physical injury or sickness.
- Lost wages due to the physical injury or sickness.
However, it's important to note a few key points:
Punitive Damages: If your settlement includes punitive damages (which are intended to punish the defendant rather than compensate you for your injuries), this portion of the settlement is generally taxable, even if the rest of your settlement is related to a personal physical injury.
Emotional Distress or Mental Anguish: If your settlement includes compensation for emotional distress or mental anguish not originating from a physical injury or sickness, this portion may be taxable. However, if emotional distress or mental anguish results directly from the physical injury or sickness, it might be considered part of the tax-free settlement.
Interest: Any interest on the settlement is typically considered taxable income.
To ensure proper tax treatment, it's crucial to have clear documentation and allocation of the settlement amounts, especially if your settlement includes different types of damages.
The "origin of the claim" rule is key in determining tax liability.
You can learn more about how the “origin of the claim” rule determines taxation, as well as other common questions about settlement taxes, in this article.
Are punitive damages or interest from a personal injury case taxable?
Yes, punitive damages and interest from a personal injury case are generally taxable.
Punitive Damages: While compensatory damages for a personal physical injury or physical sickness are typically tax-free, punitive damages are treated differently. Punitive damages are intended to punish the defendant for their actions, not to compensate the plaintiff for a loss. As such, punitive damages are considered taxable income by the IRS, even if they are awarded in conjunction with a non-taxable personal injury settlement.
Interest: Any interest on the settlement, such as pre-judgment or post-judgment interest, is also typically taxable. This type of interest is considered income by the IRS, as it represents the compensation for the time value of money that was held up due to the lawsuit proceedings, rather than direct compensation for a physical injury or sickness.
Even if the underlying lawsuit is related to personal physical injury and the compensatory part of the settlement is tax-free, both punitive damages and interest are subject to taxation. It's important to clearly understand and document the different components of your settlement to ensure proper tax treatment.
If my settlement is taxable, can I deduct attorney fees?
Whether you can deduct attorney fees from a taxable settlement depends on the type of case and the specific tax laws in effect. Generally, the ability to deduct attorney fees has been significantly impacted by the Tax Cuts and Jobs Act of 2017. Here's a breakdown of the general rules:
Employment Cases: For employment discrimination cases based on the plaintiff being a member of a protected class (e.g., age, race, gender), retaliation cases, or certain whistleblower claims, plaintiffs can usually deduct attorney fees "above the line." This means plaintiffs can subtract these fees from their gross income, potentially reducing the taxable portion of their settlement.
If the employment lawsuit is not related to discrimination or retaliation based on being a member of a protected class (such as race, color, religion, sex, national origin, age, disability, etc.), then the legal fees may not be deductible.
For instance, cases solely involving breach of contract, severance pay disputes, or personal disputes without a discrimination or retaliation component typically do not qualify for legal fee deductions.
Other Types of Cases (Including Professional Malpractice, Defamation, etc.): For most other types of cases, the Tax Cuts and Jobs Act of 2017 removed the ability for plaintiffs to deduct their attorney fees.
Consequently, plaintiffs must pay tax on their total gross settlement amount, including the portion paid to attorneys as fees. This situation is often referred to as the "Plaintiff Double Tax Trap," where the same income is effectively taxed twice—once for the plaintiff and once for the attorney.
To learn more information about how 5 common case types are taxed, check out this article.
Is there any way to avoid paying taxes on the total gross settlement amount if I can’t deduct legal fees?
There may be ways to avoid paying taxes on the attorney fee portion of the settlement.
To explore your options, click the “Get Started” button above to start using our Settlement Tax Calculator.
Can a structured settlement annuity help me pay less in taxes on my settlement?
Yes. A structured settlement annuity is one of the most common—and powerful—tax planning strategies we use with plaintiffs across the country.
We often recommend this tax planning tool to plaintiffs who are looking to increase their after-tax net settlement.
This strategy allows you to receive your settlement in periodic payments over time instead of a lump sum. By spreading the taxable income over several years, you may benefit from a lower marginal tax rate each year, compared to receiving the entire taxable amount in one year and being taxed at a higher rate.
A structured settlement annuity works in all case types and regardless of whether the plaintiff can deduct legal fees or not.
Can this strategy be combined with other tax planning strategies?
Yes, a structured settlement annuity can be combined with other tax planning strategies to maximize tax savings and financial benefits.
Each of these tools addresses a different aspect of tax liability, and when used together, they can offer a more comprehensive way to minimize taxes and provide a stable income stream over time. Here's how they can work together:
Structured Settlement Annuity: A structured settlement annuity allows you to receive your settlement in periodic payments rather than a lump sum. This can spread taxable income over several years, potentially keeping you in lower tax brackets and reducing your overall tax liability. The funds in the annuity also grow on a tax-deferred basis.
Addressing Attorney Fee Taxation: Certain planning strategies are designed to help ensure that you, as the plaintiff, aren't taxed on the portion of a settlement that goes toward attorney fees in cases where those fees aren't deductible. The goal is to reduce your taxable income down to the net amount you actually receive after fees.
When combined, these approaches can offer the following benefits:
- Tax Efficiency: Spreading income over multiple years through an annuity, combined with reducing the taxable portion of a settlement tied to attorney fees, can lower your overall tax burden.
- Financial Security: The annuity provides a predictable stream of income over time, which can be particularly helpful for managing future expenses and providing financial stability.
- Flexibility: The payment schedule of a structured settlement annuity can be tailored to your specific financial needs and goals, giving you flexibility in how you receive and use your settlement funds.
Our proprietary Settlement Tax Calculator can help give you an idea of how much money you may be able to keep post-settlement when using strategies like these. Click the "Get Started" button above to begin.