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U.S. Government helps personal injury victims


Two U.S. Government agencies have issued rulings that will make life easier for some personal injury victims who are pursuing lawsuits.

One is from the federal Medicare agency, and it affects anyone who is insured by Medicare.

In general, if you have an accident and Medicare pays any of your medical expenses … and you later bring a legal claim against someone and recover compensation … you’re required to reimburse Medicare out of your settlement proceeds.

A big problem is that Medicare is a huge bureaucracy, and it often takes it a very long time to determine exactly how much it’s owed in reimbursement.

As a result, many claims and lawsuits that would normally result in a fairly speedy settlement for the injured person instead get caught up in red tape.

Why? One reason is that insurance companies are sometimes reluctant to sign off on a settlement until they know for sure how much the government is going to demand. If an insurance company pays an injured person, and for some reason Medicare doesn’t get its full share, Medicare can force the insurer to make up the difference. So many insurers want to wait until Medicare decides exactly how much it’s owed, so they can make certain the government is repaid in full.

In other cases, an injury victim’s claim might be settled, but a large amount of money will be set aside in escrow – meaning the injured person can’t get access to it – while Medicare slowly makes up its mind.

This year, though, the Medicare agency has taken steps to fix the problem. It has adopted a rule saying that in many cases, it will provide a final “bill” within 60 days of a request.

Unfortunately, the new rule only applies to settlements of $25,000 or less, but the agency says that it plans to increase this $25,000 limit in the future. (The rule also says that if a settlement is for less than $5,000, the injured person has the option of simply paying 25% to Medicare, regardless of how much reimbursement Medicare is actually owed.)

For now, the new rule is a step in the right direction toward helping injured people get the compensation they deserve in a timely way.

The IRS helps, too

The IRS has also issued a decision that will help certain injured people avoid having to pay income tax on their compensation.

The general rule is that, if you receive compensation for a physical injury, you don’t have to pay income tax on it.

In the past, though, the IRS has insisted that it’s not enough just to show that you were compensated for a physical injury; you also had to show that you brought the “right” type of legal claim. You had to show that the type of lawsuit or claim you brought met certain requirements under state law. And while most claims for a physical injury met this test, not all of them did, and as a result some people who received a settlement for a physical injury ended up having to pay income tax on the proceeds.

Now, however, the IRS has dropped this second requirement – so regardless of the exact nature of the claim, as long as you recover compensation for a physical injury, the money is tax-free.

You might want to consult with your lawyer or tax advisor to see whether this change applies to you. In some cases, if you received compensation in recent years and paid income tax on it, you might be entitled to a refund.


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