I received a bulk settlement for a car accident. I was required to pay back the two insurance companies for any monies they paid towards my care out of my settlement.

[fireman0175]

Can I deduct these expenses?  Can I deduct my attorney fees?  Thanks in advance

[AmyC]

Physical injury is not a taxable event. You may be able to deduct expenses on taxable income. Since you don't state why you won (other than car) a lawsuit, let me give you the short version here.

[fireman0175]

The settlement was for physical injuries sustained.  My attorney took 1/3.  I had to pay back the insurance companies for treatment expenses because there is a law that allows them to recoup from any settlement.   The settlement was not broken down further just a bulk amount to make me go away.  An out of court settlement.  Not due to a court order, but for my injuries.  So perhaps all those expenses would be out of pocket medical?   Would i need to refile for 2019 and 2020?  Or just 2022 when i paid the insurance companies back for my medical bills?

Would the money I used to pay back the insurance companies for my medical bills be considered not taxable if it were paid prior to me putting it in my bank?  Or could it be considered taxable income since I could have paid from taxed income already in my bank account?  Just don't wanna miss a deduction.

[JohnB5677]

You have a complicated scenario.  If I’ve misunderstood part of it, please write back and provide additional information.

Can I deduct these expenses?  Can I deduct my attorney fees?

There is no concern about deducting legal fees in a personal injury case involving physical harm or physical sickness, because the recovery is 100% tax free if the damages are limited to compensatory damages.  There is no deduction for attorney’s fees, but there is no need to deduct those fees.

§ 104. Compensation for injuries or sickness (a) In general Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include—

(3) amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness TITLE 26—INTERNAL REVENUE CODE

Would the money I used to pay back the insurance companies for my medical bills be considered not taxable if it were paid prior to me putting it in my bank? 

Yes, however claims for personal injury are not taxable.

Medical expenses are deductible on the money you re-paid.

Yes, you can deduct the medical expenses that were not covered by the insurance; however, your medical deductions are limited. 

You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income. You figure the amount you're allowed to deduct on Schedule A (Form 1040).  In addition, your total itemized deduction must exceed the standard deduction.

Will you have to file amended tax returns?

Yes, if you claimed the money a taxable you will.  In addition, you will be able to claim the Medical deduction.

However, You must file an amended return within 3 years of the original filing date.  So, your 2019 amended return would have to be filed by April 15th, 2023.

 Can I Deduct Legal Fees on My Taxes?   

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[fireman0175]

Thanks for the great explanation.  Could you please clarify...  If I paid the insurance company back, the medical expenses they paid in prior years,  in 2022 I read in the IRS manual whereas I claim them the date a check or CC was used to pay for them.  That would be 2022, correct?  

Thanks!

[GeorgeM777]

Perhaps you can use the 2022 date.  However, we also need some additional information about the payment you made to the insurance companies. Was the money you received from the insurance company taxable income to you?  If it was for injuries sustained in the accident, it probably was not taxable income and therefore, your reimbursement to the insurance company should not have any impact on your taxes as the money you received, and the money you are paying back was not taxable.  This assumes that the insurance money was paid in connection with your physical injuries and not for something else such as lost wages.

Are you wondering whether you can deduct the reimbursement to the insurance company?    

@fireman0175