If your personal injury case settles for $25,000, you may receive approximately $9,500 to $17,000, depending on attorney fees, case expenses, unpaid medical bills and health-insurance reimbursement claims. A claimant with no attorney, few medical bills and no liens may keep more than $20,000. In contrast, substantial medical liens and a 40% attorney fee can reduce the final payment to less than $10,000.
The $25,000 figure is the gross settlement, not necessarily the amount deposited into your bank account. Before the money is distributed, several deductions may be taken from the settlement.
Attorney Fees Are Usually the Largest Deduction
Personal injury attorneys frequently work under contingency-fee agreements. This means the attorney receives an agreed percentage of the recovery instead of charging hourly fees.
A common contingency fee is one-third of the settlement, although agreements may charge 40% or another percentage, particularly when a lawsuit is filed or the case proceeds toward trial. The exact percentage must come from your signed fee agreement. The American Bar Association explains that contingency fees are often between one-third and 40% of the recovery.
On a $25,000 settlement:
- A one-third fee is approximately $8,333.
- A 40% fee is $10,000.
- A 25% fee is $6,250.
With a one-third fee and no other deductions, you would receive approximately $16,667.
Case Expenses May Be Deducted Separately
Attorney fees and case expenses are not necessarily the same thing. A law firm may have paid costs while developing the claim, such as:
- Medical-record charges
- Court filing fees
- Police-report fees
- Expert-witness fees
- Deposition expenses
- Investigation costs
- Postage and document fees
Your agreement should explain whether expenses are deducted before or after the attorney’s percentage is calculated. This detail can affect your final payment. The ABA’s professional-conduct guidance says contingency agreements should explain the percentage, the expenses charged to the client and whether expenses are deducted before or after the fee.
Suppose the case has a one-third attorney fee and $1,500 in expenses. If the attorney’s fee is calculated before expenses, the amount remaining before medical bills would be approximately $15,167.
Medical Bills and Liens Can Reduce the Settlement
Medical providers, hospitals and health insurers may have a right to be repaid from the settlement. The amount depends on how the treatment was paid and whether the bills were already resolved.
Possible claims against the settlement include:
- Unpaid hospital and doctor bills
- Health-insurance reimbursement claims
- Medicare or Medicaid recovery claims
- Workers’ compensation liens
- Medical-provider liens
- Medical funding or treatment liens
Medicare may make conditional payments for accident-related treatment and later require reimbursement when the injured person receives a settlement. The settlement should be reported, and only properly related medical payments should be included in Medicare’s recovery demand.
An attorney may sometimes negotiate medical bills or liens below their original amounts. Any reduction can increase the claimant’s net recovery, but negotiation is not guaranteed.
Example of a Typical $25,000 Settlement
Consider the following example:
Gross settlement: $25,000
One-third attorney fee: approximately $8,333
Case expenses: $1,500
Medical bills or liens: $3,000
The estimated payment to the claimant would be approximately $12,167.
When expenses are deducted before the one-third fee is calculated, the estimated recovery under the same figures would be approximately $12,667. Your fee agreement determines which calculation applies.
Example With a 40% Attorney Fee
A case that required extensive litigation might have the following deductions:
- Gross settlement: $25,000
- Attorney fee at 40%: $10,000
- Case expenses: $1,500
- Medical liens: $4,000
The estimated amount paid to the claimant would be $9,500.
This does not necessarily mean the deductions are improper. A case involving disputed fault, depositions, expert testimony or court proceedings may involve greater legal work and higher expenses.
What If You Did Not Hire an Attorney?
Without an attorney, there would be no contingency fee. However, you would still be responsible for medical bills, liens, case expenses and any applicable taxes.
For example, if you negotiated a $25,000 settlement yourself and had $3,000 in unpaid medical bills, you might keep approximately $22,000 before taxes or other obligations.
Handling a claim without an attorney may save legal fees, but the settlement amount itself could be lower if liability, insurance coverage or the seriousness of the injuries is disputed.
Will Taxes Be Deducted?
Compensation received because of personal physical injuries or physical sickness is generally excluded from federal taxable income. This can include amounts for medical expenses, pain and suffering and lost income resulting from the physical injury.
However, punitive damages and settlement interest are generally taxable. Settlements for employment claims, nonphysical emotional distress, discrimination or lost business profits may also be taxable. Medical expenses deducted on an earlier tax return may create a limited taxable recovery.
Taxes are not always automatically withheld from a settlement check. When any part may be taxable, the claimant should reserve enough money to cover the potential federal and state obligation.
Check the Final Settlement Statement
Before the money is distributed, review the written settlement breakdown carefully. It should identify the gross settlement, attorney fee, expenses, medical payments, liens and final amount payable to you.
For a $25,000 personal injury settlement, receiving around $12,000 to $16,000 is a reasonable general estimate when a one-third attorney fee and moderate expenses apply. The exact amount can only be calculated after reviewing your fee agreement, medical balances, liens and the tax treatment of the settlement.
