How Are Personal Injury Settlements Paid Out?


How are personal injury settlements paid out after a personal injury lawsuit? Whether you take your case to trial or negotiate for the compensation you deserve, you can receive your settlement in a lump sum or through structured payments.

You can discuss your options and preferred payment method with a personal injury lawyer from Moore Law. Our team can walk you through the basics of personal injury settlements and ensure you get the chance to secure a fair settlement.

Structured Payments vs. Larger Lump Sum Payments

If you win a settlement in a lawsuit, you get to choose how you receive that settlement. How do personal injury settlements work, though?

There are two methods through which accident survivors, like you, can secure personal injury lawsuit settlements. You can request a lump sum or structured settlement payments. Both methods have their pros and cons.

Lump Sum Settlements

If you request a lump sum settlement, the party liable for your losses pays you a personal injury lawsuit settlement that fulfills their financial obligation to you in a single payment. You can then spend that money on medical bills owed to medical providers, repairs to property damage, attorney fees/expenses, and other immediate expenses. Requesting a lump sum also allows you to spend that sum on your own time. 

That said, lump sums can prove risky. Similarly, if you get pressured into giving part of your settlement money away or misspending what you've earned, you won't have an opportunity to get other damages to help you financially recover.

Structured Settlement Payments

Unlike a lump sum payment, structured settlement payments pay out over the course of several months or years. What's more, the Periodic Payments Settlement Act declares that periodic settlement payments do not qualify as taxable income. In other words, agreeing to structured settlement payments can help you avoid settlement-related taxation.

You can receive structured settlement payments as annuities that a defendant purchases. You may alternatively receive these payments as bonds or from a defendant's bank account. You can discuss the specifics of your preferred payment with your attorney and the defendant during settlement negotiations.

A structured settlement payment plan works best for plaintiffs like you who need financial assistance to address their bills over a considerable period of time. You won't receive the full value of your settlement all at once and may subsequently struggle to pay immediate bills. However, structured settlement payment plans ensure that you benefit from untaxed income for months or even years after you win your case.

Tax Implications of a Settlement Agreement

Are personal injury settlements taxed? As mentioned, the Periodic Payments Settlement Act states that structured settlement payments do not qualify as taxable income. How can tax law otherwise impact your settlement, though?

The IRS outlines the tax implications of a lump sum settlement agreement in the Internal Revenue Code Section 61. This section states that, unless your settlement qualifies as exempt income under another section of the Internal Revenue Code, the settlement qualifies as income. If you cannot argue that your settlement qualifies as exempt from national tax law, you must consider that settlement as taxable income come tax season.

The exemptions most relevant to today's personal injury cases appear in Internal Revenue Code Section 104. This section states that the following damages do not constitute gross income. As such, they do not qualify as taxable income:

  • Compensation for personal injuries received through workers' compensation claims
  • Damages received addressing personal physical injuries or physical sickness
  • Compensation received from an insurance provider covering an accident's personal injuries or illnesses
  • Compensation from a military pension, annuity, or military allowance for personal injuries or illnesses
  • Damages received through disability income after the named party fell victim to terrorist behavior or dangerous military action

That said, the Internal Revenue Code goes on to clarify that any punitive damages received in a personal injury case do count as taxable income. Medical liens, contingency fee agreements, and other expenses may also impact the total value of your settlement and, thus, the gross income you have to report to the IRS.

You can work out the specifics of the tax code's impact on your personal injury settlement with both a personal injury attorney and an experienced accountant.

How Long Does the Personal Injury Settlement Process Take?

The amount of time that your personal injury settlement process takes depends on your accident and the defendant's attitude. For example, if the defendant understands that their negligence wrongfully contributed to your losses, your settlement negotiations may resolve in a month or two.

However, belligerent defendants can drag out the personal injury settlement process. Even if you choose to negotiate for a settlement, negotiations with an uncooperative defendant can last several months. If you have to transition out of negotiations and take your case to court, it may take you years to receive the personal injury settlement that you deserve.

Other influences that can delay the personal injury settlement process can include:

  • Discrepancies between the factual information relevant to your case
  • Accidents involving substantial economic losses
  • Your failure to reach maximum medical improvement

You can speak with a personal injury lawyer before initiating your case to estimate how long it might take you to receive the settlement you deserve.

Get Fair Compensation With Help From an Experienced Attorney

You deserve a comprehensive personal injury settlement after an accident caused by someone else's negligence. Don't let insurance adjusters talk you out of the settlement agreement you deserve. You can meet with a personal injury attorney to discuss the total value of your case. Our experienced team can assess your accident and determine the economic value of your personal injury accident. We can then discuss what settlement fund payout method can best help you recover from your losses.

Moore Law offers victims of personal injury accidents free case consultations. If you're ready to learn more about your right to compensation, contact us to schedule your no-obligation evaluation today. 

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If you have been injured or have lost a loved one as a result of another person's negligence, you deserve to be fully compensated for your losses. The simple fact is that you should not be forced to pay the price for another person's careless or reckless actions.