Pritchard Injury Firm is often contacted by new and recent clients in North Georgia and Chattanooga, Tennessee, to discuss the tax implications of their personal injury awards and settlements. This is a common concern, especially around tax season as April 15 approaches.
Navigating these tax implications can be tricky since some laws are enforced by the state and others by the federal government. Some tax laws governing personal injury settlements and awards are similar in Tennessee and Georgia, but the states differ in specific areas. With tax season in full swing, let’s explore the basics of how injury settlements and awards will impact your filing.
GA and TN Injury Settlements: Similarities in Tax Guidance
Georgia and Tennessee follow federal tax guidelines, meaning compensation for physical injuries is generally not taxable. For example, if you suffered a catastrophic injury in a trucking accident and received a $10 million settlement, the compensation you received to recover from the injury, including emotional trauma and mental distress, is not taxable (if not previously deducted).
However, if the reimbursements for your medical expenses were previously deducted, they will be taxable in Georgia and Tennessee.
This is one reason why the various types of damages are itemized when a jury verdict or settlement is announced.
Key Differences Between GA and TN
Depending on whether you file in Tennessee or Georgia, certain elements of your award or settlement may or may not be taxable. So, in what legal areas do they differ?
State Income Tax
- Georgia: The Peach State taxes lost wages and punitive damages as part of state income tax.
- Tennessee: No state income tax on wages or punitive damages.
Interest on Settlement
- Georgia: Taxes settlement interest as part of state income tax.
- Tennessee: Previously taxed interest under the Hall Tax, but this was phased out in 2021, meaning settlement interest is now only subject to federal tax.
Tennessee offers a tax advantage by not having a state income tax, making certain items of the settlement (like lost wages and punitive damages) completely free from state taxation.
On Wrongful Death Settlements and Estate Taxes
In Georgia and Tennessee, once a wrongful death claim is resolved, the tax treatment depends on how the settlement is designed. These settlements are often resolved through structured settlements, where payments are made over time, and may have different tax implications, but the general rules remain the same.
Any compensation for the deceased person’s physical injuries or death is not taxable to the recipients. This includes payments for pain and suffering, medical bills, and loss of life.
A notable exception is if the decedent previously deducted medical expenses related to the injury; in that case, the amount reimbursed in the settlement may be taxable under the tax benefit rule.
Neither Georgia nor Tennessee has estate taxes. If the settlement is paid directly to the surviving family members (e.g., spouse, children, parents), it is not part of the deceased person’s estate and is not subject to estate tax.
However, if the settlement is paid to the estate, it may be subject to federal estate taxes (if the estate exceeds the exemption threshold, which is under $14 million per individual in 2024). It is worth noting that this threshold is set to expire on Dec. 31, 2025, unless Congress extends or reauthorizes the Tax Cuts and Jobs Act of 2017. This federal legislation allows estate exemptions of $13.99 million per individual or $27.98 million for a married couple and is set to expire on Dec. 31, 2025.
If Congress does not extend these higher exemption amounts, they will revert to a base amount of $5 million (plus inflation adjustments) starting Jan. 1, 2026. No mention of a reauthorization or extension of the Act has been announced, which is why the next nine months are crucial if you want to protect more of your settlement through estate planning.
The details above are just a starting point for plaintiffs in Georgia and Tennessee. Following a verdict or settlement, you should collaborate with your injury trial lawyer to discuss how structured settlements and payments will be taxed.
Zach Pritchard: Your Personal Injury Attorney in North Georgia and Chattanooga, TN
If you or a loved one were injured in any circumstance, from a car accident or fall to a burn or dog bite, experienced attorneys at Pritchard Injury Firm can help. Contact us online for compassionate legal guidance that establishes liability and helps you get the compensation needed to recover and move forward.