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Don't Win Your Personal Injury Claim Just to Get Bitten Later On by Medicaid or the IRS

| Apr 15, 2010

When you hire a lawyer to pursue your claim for personal injury arising out of a car accident, what is the number one thing you are looking for? People come to us for all sorts of reasons, but to almost everyone it is important to leave with the most compensation possible for their injury - the highest possible settlement or verdict amount. However, clients and their lawyers must make sure to consider not only the dollar amount of the settlement check they negotiate, but also how much that dollar amount will be reduced by other parties who have a claim to the money.

When Medicaid or Medicare pays for your medical treatment after you are injured because of someone else's negligence, Medicaid or Medicare is entitled to reimbursement if you recover from the at-fault party. When you settle a personal injury case, the IRS is entitled to tax certain portions of total settlement amount. All of these factors can reduce the bottom line for the client. It is part of the lawyer's job to set up the settlement in the way that is most beneficial to the client.

In a recent article, "The Allocation of Damages in the Personal Injury Lawsuit" by Robert B. Pearlman, Mr. Pearlman sets out some practice tips for lawyers settling personal injury claims. Personal injury attorneys in South Carolina must begin to factor the allocation of damages and not just their total amount when settling cases. Amounts received by Plaintiffs as either awards or settlements can be considered "income" by the Internal Revenue Service. This was not the case prior to 1996. In order to reduce a client's tax burden on a particular settlement, attorneys should clearly lay out the essence and nature of the claims and the purposes of the damages settlements, which should be agreed to by the parties.

The allocation of damages when a Plaintiff has Medicaid or Medicare is especially important. A state Medicaid agency (like the South Carolina Department of Health and Human Services) has statutory authority to recover only from that part of an award or settlement that represents payment for medical expenses, and not for other forms of damages such as pain and suffering, lost wages, or loss of consortium.

When negotiating a settlement for a client, an injury car accident SC lawyer should consider more than just maximizing his client's recovery. Damages should be allocated to different kinds of recovery like medical charges, lost wages, pain and suffering, etc. This type of allocation will require the agreement of the at-fault party. Plaintiff's attorneys should also put Medicaid/Medicare on formal notice of settlement negotiations and invite them to participate in the same when they believe that they will not be able to satisfy the liens out of settlement proceeds. In South Carolina, having the at-fault party deny liability through the settlement process will be helpful. Plaintiffs attorneys need to allocate damages in order to reduce tax liability for their clients and money that Medicaid may claim as reimbursement.

The information relayed in this blog is for educational purposes only and is not legal advice. The cases referenced and explained by the blog's author(s) are for informational purposes only and are not intended to imply that certain, or similar, results may be achieved in each client's case.

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