How much of your settlement will you actually take home?

How the math works

Money from an injury settlement is paid out in a fixed order. Your attorney deposits the check in a trust account and pays everyone with a claim on it before you receive the rest:

1. Attorney’s fee. A percentage of the recovery set by your written contingency agreement — most often calculated on the full settlement.
2. Case costs. Out-of-pocket expenses your attorney advanced: medical records, filing fees, depositions, expert reports.
3. Medical liens and unpaid bills. Repayment owed to Medicare, Medicaid, your health plan, or hospitals and providers that treated you.
4. Other payoffs. A pre-settlement funding advance, or a child support lien, if you have one.
5. Your share. Whatever remains is paid to you — this is the number the calculator shows.

Example: how much of a $25,000 settlement will you get?

Say a car accident claim settles for $25,000 before a lawsuit is filed, under a one-third fee agreement, with $500 in costs and $6,000 still owed to the hospital:

If Medicare had paid that same $6,000 instead of the hospital being owed it, Medicare would have to reduce its claim to$3,880, and your take-home would rise to $12,286.67 (49.1%). The next section explains why.

Quick reference: $25,000, $50,000 and $100,000 settlements

What’s left before medical liens, under two common fee scenarios. Cost figures are illustrative — yours will be on your settlement statement.

Subtract your medical liens from these figures, or enter them above for an exact estimate.

Why Medicare takes less than it paid

When Medicare pays for treatment related to an injury someone else caused, it has a right to be repaid from the settlement. But federal regulations require Medicare to share in the cost of getting that money — the attorney’s fee and case expenses, which the regulation callsprocurement costs. Under 42 CFR § 411.37, when Medicare’s payments are less than the settlement:

1. Divide total procurement costs by the settlement amount.
2. Multiply Medicare’s payments by that ratio — that is Medicare’s share of the costs.
3. Subtract that share from Medicare’s payments. The remainder is what Medicare recovers.

In the example above, fees and costs of $8,833.33 are 35.3% of the $25,000 settlement, so Medicare’s $6,000 claim drops by $2,120 to $3,880. If Medicare’s payments equal or exceed the settlement, it recovers the settlement minus all procurement costs instead.

Other liens: Medicaid, health plans and hospitals

• Medicaid can generally recover only from the part of a settlement that represents medical expenses, not from money for pain, suffering or lost wages (Arkansas DHHS v. Ahlborn, 2006).
• Employer health plans governed by ERISA can enforce the reimbursement terms written in the plan; equitable reductions such as sharing attorney fees apply only where the plan is silent (US Airways v. McCutchen, 2013). Ask for the plan document.
• Hospital and provider liens are created by state law, and the rules on notice, amounts and priority vary by state. These are commonly negotiated.

Is the money taxable?

Under federal law, compensatory damages received on account of a personal physical injury or physical sickness are generally excluded from income (26 U.S.C. § 104(a)(2)). Punitive damages and interest are generally taxable, and damages for emotional distress that don’t stem from a physical injury can be taxable. The IRS summarizes these rules in Publication 4345. This is general information, not tax advice.

Before you sign the release: five numbers to get in writing

1. The final amount of every lien — Medicare’s final demand, not the conditional payment letter.
2. How your fee is calculated: on the full settlement, or after costs are repaid.
3. An itemized list of case costs.
4. A payoff letter for any lawsuit funding, showing interest to the expected payout date.
5. The net amount to you on a signed settlement statement.

Frequently asked questions