Guide · Updated
What you take home from a settlement
The settlement amount is not what you get. Here is where the money usually goes first, and what to ask before you agree.
Step 1: Where the money goes
When a case settles, the check usually goes to your lawyer, not to you. The lawyer puts it in a separate trust account, apart from the firm’s own money. In Texas, the rules require this1.
Then the money is usually split in this order:
- The lawyer’s fee.Usually a share of the settlement, set in your fee agreement.
- Case costs.Money the firm spent on your case, such as filing fees and records.
- Medical bills and liens.Money owed to doctors, hospitals or insurers that paid for your care.
- You.What is left is your share.
The order and the details depend on your agreement and your state. Ask your lawyer to walk you through it before you agree to settle.
Step 2: The fee and the costs
Most injury lawyers take a share of the money you get. In Texas, the agreement must say this3.
That one choice changes your share. If costs come out first, the fee is a share of a smaller number. For the math, see how contingency fees work.
Step 3: Medical bills, liens and paying back insurers
A lien is a legal claim on your settlement by someone you owe. If someone else paid for your care, they may have the right to be paid back from your settlement. Your lawyer usually has to settle these claims before paying you.
- Medicare.If Medicare paid for care linked to the injury, it can recover that money from you or from others who received the settlement, including your lawyer4. Medicare must be paid back within 60 days4. Medicare lowers what it takes back to share in the cost of getting the settlement, such as the lawyer’s fee5.
- Unpaid medical bills.If a doctor or clinic has not been paid, you may still owe them. Ask your lawyer which bills will be paid from the settlement and which are yours to pay.
Lawyers sometimes ask insurers or hospitals to take less.
Step 4: PIP and med-pay
PIP (personal injury protection) and med-pay are parts of your own car insurance. They can pay some medical bills soon after a crash. In Texas, insurers must include PIP in a car policy unless you turned it down in writing9. It pays no matter who caused the crash9.
Money PIP or med-pay already paid may change what is owed from your settlement.
Step 5: Taxes
Under federal tax rules, money you get for a physical injury or physical sickness is usually not taxable income. This is true whether you settle or win in court, and whether you are paid all at once or over time10.
- Punitive damages (money meant to punish the other side) are not covered by this rule10.
- Emotional distress alone does not count as a physical injury. Distress caused by a physical injury does count10.
State taxes can differ.
Step 6: A worked example
- Settlement
- $60,000
- Fee, one-third of $60,000
- $20,000
- Case costs
- $3,000
- Paid back to a health insurer
- $9,000
- Unpaid hospital bill
- $4,000
- You receive
- $24,000
These numbers are made up to show the math. They are not typical fees, costs, bills or settlements. Here the fee is figured before costs come out. Your agreement, your bills and your state’s rules decide the real split.
To try your own numbers, change the example below. The insurer and hospital amounts are added together as medical bills and liens. It is an estimate, not advice, and nothing you type leaves this page. There is also a page with just the calculator.
Worked example, with made-up numbers
- Settlement
- $60,000
- Lawyer’s fee: 33⅓% of $60,000
- − $20,000
- Case costs
- − $3,000
- Medical bills and liens
- − $13,000
- PIP or med-pay paid back
- − $0
- You take home (estimate)
- $24,000
If costs came out before the fee instead, the fee would be $19,000 and you would take home $25,000.
This is an estimate from the numbers above, not advice. Your lawyer’s written settlement statement shows the real amounts.
Step 7: Questions to ask before you agree
- Can you show me, on paper, what I will receive from this offer?
- Do costs come out before or after your fee?
- Who has a lien or a right to be paid back, and how much?
- Will you ask any of them to take less?
- Which medical bills will still be mine to pay?
In Texas, the lawyer must give you this statement3. Read it before you sign anything.
Not happy with how your case is going? Read changing or firing your lawyer.
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Where the legal facts on this page come from
- Tex. Disciplinary R. Prof’l Conduct 1.15 (safekeeping property)“(a) A lawyer shall hold funds and other property belonging in whole or in part to clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Such funds shall be kept in a separate account, designated as a trust or escrow account, maintained in the state where the lawyers office is situated, or elsewhere with the consent of the client or third person. … (b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.”Read the source: Tex. Disciplinary R. Prof’l Conduct 1.15 (safekeeping property)
- ABA Model Rule of Professional Conduct 1.5 (fees)Read the source: ABA Model Rule of Professional Conduct 1.5 (fees)
- Tex. Disciplinary R. Prof’l Conduct 1.04 (fees)“(d) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (e) or other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined. If there is to be a differentiation in the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, the percentage for each shall be stated. The agreement shall state the litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement describing the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.”Read the source: Tex. Disciplinary R. Prof’l Conduct 1.04 (fees)
- 42 C.F.R. § 411.24 (recovery of conditional payments)“(g) Recovery from parties that receive primary payments. CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment. (h) Reimbursement to Medicare. If the beneficiary or other party receives a primary payment, the beneficiary or other party must reimburse Medicare within 60 days.”Read the source: 42 C.F.R. § 411.24 (recovery of conditional payments)
- 42 C.F.R. § 411.37 (amount of Medicare recovery when a primary payment is made as a result of a judgment or settlement)“(a) Recovery against the party that received payment—(1) General rule. Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement, as provided in this section, if— (i) Procurement costs are incurred because the claim is disputed; and (ii) Those costs are borne by the party against which CMS seeks to recover. … (c) Medicare payments are less than the judgment or settlement amount. If Medicare payments are less than the judgment or settlement amount, the recovery is computed as follows: (1) Determine the ratio of the procurement costs to the total judgment or settlement payment. (2) Apply the ratio to the Medicare payment. The product is the Medicare share of procurement costs. (3) Subtract the Medicare share of procurement costs from the Medicare payments. The remainder is the Medicare recovery amount.”Read the source: 42 C.F.R. § 411.37 (amount of Medicare recovery when a primary payment is made as a result of a judgment or settlement)
- 42 C.F.R. § 433.146 (Medicaid: rights assigned; assignment method)“(a) Except as specified in paragraph (b) of this section, the agency must require the individual to assign to the State— (1) His own rights to any medical care support available under an order of a court or an administrative agency, and any third party payments for medical care; …”Read the source: 42 C.F.R. § 433.146 (Medicaid: rights assigned; assignment method)
- 42 C.F.R. § 433.139 (Medicaid: payment of claims; recovery of reimbursement)“(d) Recovery of reimbursement. … (2) Except as provided in paragraph (e) of this section, if the agency learns of the existence of a liable third party after a claim is paid, or benefits become available from a third party after a claim is paid, the agency must seek recovery of reimbursement within 60 days after the end of the month it learns of the existence of the liable third party or benefits become available. (3) Reimbursement must be sought unless the agency determines that recovery would not be cost effective in accordance with paragraph (f) of this section.”Read the source: 42 C.F.R. § 433.139 (Medicaid: payment of claims; recovery of reimbursement)
- Tex. Prop. Code §§ 55.002, 55.003, 55.004 (hospital and emergency medical services liens)“Sec. 55.002. LIEN. (a) A hospital has a lien on a cause of action or claim of an individual who receives hospital services for injuries caused by an accident that is attributed to the negligence of another person. For the lien to attach, the individual must be admitted to a hospital not later than 72 hours after the accident. … Sec. 55.003. PROPERTY TO WHICH LIEN ATTACHES. (a) A lien under this chapter attaches to: … (3) the proceeds of a settlement of a cause of action or a claim by the injured individual or another person entitled to make the claim, arising from an injury for which the injured individual is admitted to the hospital or receives emergency medical services. … Sec. 55.004. AMOUNT OF LIEN. … (b) A hospital lien described by Section 55.002(a) is for the lesser of: (1) the amount of the hospital's charges for services provided to the injured individual during the first 100 days of the injured individual's hospitalization; (2) 50 percent of all amounts recovered by the injured individual through a cause of action, judgment, or settlement described by Section 55.003(a); or (3) if the trier of fact specifies the amount awarded for hospital charges for services provided to the injured individual, the amount awarded by the trier of fact for the services provided to the injured individual by the hospital less the pro rata share of reasonable attorney's fees and expenses the injured individual incurred in pursuing the claim.”Read the source: Tex. Prop. Code §§ 55.002, 55.003, 55.004 (hospital and emergency medical services liens)
- Tex. Ins. Code §§ 1952.152, 1952.155 (personal injury protection)“§ 1952.152. (a) An insurer may not deliver or issue for delivery in this state an automobile liability insurance policy … unless the insurer provides personal injury protection coverage in the policy or supplemental to the policy. (b) The coverage required by this subchapter does not apply if any insured named in the insurance policy rejects the coverage in writing. … § 1952.155. (a) The benefits under coverage required by this subchapter are payable without regard to: (1) the fault or nonfault of the named insured or recipient in causing or contributing to the collision …”Read the source: Tex. Ins. Code §§ 1952.152, 1952.155 (personal injury protection)
- 26 C.F.R. § 1.104-1(c) (Treasury regulation: damages received on account of personal physical injuries or physical sickness)“(c) Damages received on account of personal physical injuries or physical sickness—(1) In general. Section 104(a)(2) excludes from gross income the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness. Emotional distress is not considered a physical injury or physical sickness. However, damages for emotional distress attributable to a physical injury or physical sickness are excluded from income under section 104(a)(2). Section 104(a)(2) also excludes damages not in excess of the amount paid for medical care (described in section 213(d)(1)(A) or (B)) for emotional distress. For purposes of this paragraph (c), the term damages means an amount received (other than workers' compensation) through prosecution of a legal suit or action, or through a settlement agreement entered into in lieu of prosecution.”Read the source: 26 C.F.R. § 1.104-1(c) (Treasury regulation: damages received on account of personal physical injuries or physical sickness)
This is general information, not legal advice.