Will you owe taxes on your Jones Act settlement?
Is a Jones Act settlement under maritime law taxable? Generally no.
Under IRS Code § 104 there’s language that says any money you receive on account of a personal injury is not considered income to you during that year.
“Section 104(a)(3) states that except in the case of amounts attributable to (and not in excess of) deductions allowed under ‘ 213 for any prior taxable year, gross income does not include amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness (other than amounts received by an employee to the extent such amounts are attributable to contributions by the employer which were not includible in the gross income of the employee, or are paid by the employer).”
What this means is that you receive a Jones Act settlement or a maritime settlement the money is most likely not going to be taxable to you. However, you want to insist in your settlement documents that the company actually spells out and says that the settlement money they are paying you is under Section 104 of the Internal Revenue Code. We always protect our clients by making sure that this language is in their settlement documents.
This ensures that there’s no confusion when our clients file their taxes; they simply show the release to the accountant and say this money was under Section 104(c) on account of personal injury and it should not be taxable.
If you’re doing a Jones Act settlement, take care to make sure you talk to your attorney about this. He should know this type of information if he’s protecting your interests. Call us if you have any questions about whether or not money you may get through the Jones Act is going to be taxable to you.