Is pre-settlement funding taxable?
A pre-settlement advance is generally not taxable income when you receive it, because it is an advance against a future recovery rather than income. Whether the underlying settlement is taxable is a separate question that depends on what the settlement compensates you for.
Compensation for physical injury or physical sickness is generally not taxable under federal law. Punitive damages, interest, and compensation for lost wages in some claim types generally are.
Because the advance is repaid out of the settlement, its tax treatment usually follows the settlement's rather than standing on its own.
One thing the agreement says plainly: if an advance is never repaid because the case did not recover, the unpaid balance may be treated as income to you. Ask a tax professional what that means in your situation.
This is general information, not tax advice. Talk to a tax professional about your situation — particularly if any part of your settlement covers lost wages or punitive damages.
People who asked this also asked
Still not sure? Ask us directly.
Call 813-798-5528 and talk to a person, or apply in two minutes. There is no cost to apply, no credit check, and no cost if we say no.