A settlement is not what you take home. Before anything reaches you, the lawyer’s fee and the case costs come off, and so does anyone with a legal right to be repaid from the money: Medicare, Medicaid, a health plan, a hospital under a state lien law, or your own insurer. Some parts may then be taxable. None is a fixed share: each follows its own rules. This guide takes them in the usual order, with a deeper page at each step.
This page is general information, not legal, tax or medical advice, and not a substitute for the advice of an attorney. Injury law and deadlines vary by state and change. Ask a lawyer or the court about your situation.
What can come off a settlement
| Line | Where the rule comes from | Fixed share? |
|---|---|---|
| Lawyer’s fee | Your signed agreement; a few state and federal rules cap it | No national cap or set percentage |
| Case costs | Your agreement, and the itemized list at the end | No |
| Medicare | Federal law, reduced for your fee and costs | No, apart from an optional 25% for some settlements of $10,000 or less |
| Medicaid | Federal law and each state’s statute | No: only the medical part of the recovery |
| Job-based health plan | The plan’s own terms, and ERISA | No: the plan’s wording decides most of it |
| Hospital or provider lien | A state lien statute, where there is one, or a signed agreement | Some statutes cap it; others not read |
| Your own insurer (subrogation) | Your policy and state law | No |
| Federal income tax | 26 U.S.C. 104 and IRS publications | Depends on what each part of the money is for |
Step 1: who pays the bills before any settlement
The other driver’s insurer usually doesn’t pay your medical bills as they arrive. Liability insurance pays on legal liability: once fault and the amount are settled, usually in one payment at a settlement or after a judgment. Until then, bills go to coverage you already have. That can be personal injury protection (PIP) or medical payments coverage on your own auto policy, which pays whoever was at fault, then your health plan, Medicare or Medicaid. After an accident, “Your no-fault insurance or liability insurance pays first and Medicare pays second” (Medicare.gov).
Our page on who pays medical bills after a car accident takes each payer in order, with the auto medical rules we read in nine states. Almost everyone who pays early may want some of it back later.
Step 2: paying back those who paid
A lien is a claim on your injury money by someone who paid for or gave you care for that injury. The main ones, in short (all read 6 November 2026):
- Medicare must be repaid for related care it paid for while the claim was open (42 U.S.C. 1395y(b)(2)), but its claim is reduced by its share of your fee and costs (42 CFR 411.37).
- Medicaid can reach only the part of the settlement that is for medical care, past or future. The Supreme Court rejected a fixed one-third rule in Wos v. E.M.A. (2013).
- Job-based health plans mostly follow their own terms. A self-funded plan is exempt from state laws that limit repayment, while an insured plan can still be reached by them (FMC Corp. v. Holliday, 1990).
- Hospital and provider liens depend on state law. Illinois caps all health care liens together at 40% of the recovery; a Texas hospital lien needs admission within 72 hours of the accident; North Carolina’s statute caps these liens at 50% of the damages, not counting attorneys’ fees. Other states are not confirmed on our pages.
Our page on medical liens and who gets paid from a settlement sets out each one, with Medicare’s reduction worked through and the three state lien laws in full.
Your own car insurer can also want its money back. If it paid for repairs after a crash someone else caused, it can take over your claim against the other driver, which is subrogation, explained with the deductible rules we read for Washington, New York and Pennsylvania. Those rules differ: Washington puts a recovery toward your deductible first, less any share of fault on you, while New York and Pennsylvania share a recovery in proportion (WAC 284-30-393; 31 Pa. Code 146.8(c)).
Step 3: the lawyer’s fee and case costs
Many injury lawyers work on a contingency fee: a percentage of what is recovered, set in the agreement you sign, usually with nothing owed in fees if nothing is recovered. Case costs are often separate, and whether you owe them after a loss depends on the agreement. No national law sets the percentage. A few rules cap it, for example (both read 6 November 2026):
- Claims against the United States: 20% of a settlement made with the agency before suit, 25% of a judgment or a settlement after suit (28 U.S.C. 2678).
- Michigan injury, wrongful death and no-fault claims: one-third of the amount recovered, worked out after costs (MCR 8.121).
One clause changes what you keep: whether the fee is taken before or after costs come off. The gap is always the fee percentage times the costs. In a made-up example, a $60,000 settlement with a 30% fee and $2,500 in costs, the two ways of counting are $750 apart. Our what you keep calculator takes your own settlement, fee, costs and liens off line by line, with Medicare’s reduction if you need it. The result is an estimate, not a value for your claim.
Our page do you need a personal injury lawyer sets out the factors, including deadlines and the break-even arithmetic, without telling you which way to go.
Step 4: tax on what you keep
Federal law leaves out of income damages, other than punitive damages, received “on account of personal physical injuries or physical sickness” (26 U.S.C. 104(a)(2)). But the IRS treats some parts as taxable: punitive damages, interest, emotional distress with no physical injury behind it, and medical costs you deducted on an earlier return (IRS Publication 4345, Rev. 9-2023). Where part of a recovery is taxable, the part paid to the lawyer is generally still your income (Commissioner v. Banks, 2005).
Our page on whether personal injury settlements are taxable goes through each part, and why it states no rule for wrongful death money. A tax professional can say how the rules apply to you.
When the injured person is a child
Everything above applies to a child’s settlement too, with a judge added. In the states we read, a court usually has to approve a child’s settlement, the lawyer’s fee and what is paid out of it, and then decides where the money waits until adulthood. In California, a parent’s compromise of a child’s disputed claim “is valid only after it has been approved” by the superior court (Probate Code 3500(b), read 6 November 2026). The deadline rules differ as well: “minors can always wait until 18” is wrong, and Florida pauses a child’s time limit only in narrow cases. Our page on settlements for minors has the approval rules for seven states and the minors’ deadline rules we read by state.
Claims you may see elsewhere
- “Medicaid takes a third.” Not as a fixed rule. A state is limited to the medical part of the recovery, and the Supreme Court rejected a conclusive one-third share.
- “Settlements are tax-free.” True only for compensation for a physical injury or physical sickness. Punitive damages and interest are taxable.
- “The standard fee is a third.” Firms describe it that way. We looked for a statute or a public dataset of fees actually charged and didn’t find one, so we give no typical percentage.
What to do next
- List everyone who paid for your care: auto medical coverage, a job-based plan, Medicare or a Medicare Advantage plan, Medicaid, the VA, each hospital and clinic.
- Ask each for its claimed amount in writing, and use final figures, not the first letter. If you have Medicare, the Benefits Coordination & Recovery Center is on 1-855-798-2627.
- For a job-based plan, ask in writing for the full plan document and whether the plan is self-funded.
- Read the fee agreement for the percentage at each stage, whether costs come off before or after the fee, and what you owe if nothing is recovered.
- Before signing a release, know what each payer claims.
- Keep the claim itself on time. Liens and talks don’t stop the deadline for filing suit. Our injury deadlines by state shows the rules we have read, with their exceptions; confirm the date with a lawyer or the court.
Injury Handbook sells nothing and refers no one. We can’t answer questions about individual cases or recommend lawyers.
Sources checked on 6 November 2026.
