Speak To Our Skilled Philadelphia Personal Injury Lawyers Today
In a perfect world, injured victims will get their settlement as quickly as possible and without paying any taxes on it. However, Uncle Sam is, unfortunately, often entitled to some of your settlement. Also, keep in mind that the IRS isn’t bound by your settlement agreement’s terms and conditions, so speak to a Philadelphia personal injury lawyer first before agreeing to any settlement offer.
If you have questions or concerns about how your personal injury settlement will be taxed or about pursuing compensation for injuries caused by someone else, reach out to the Philadelphia personal injury lawyers of Mattiacci Law, LLC. Fill out our online form or call 215-709-7915 to arrange your free case review today.
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Does The Federal Government Tax Personal Injury Settlements
For the most part, the federal government does not tax personal injury settlements. Most portions of a personal injury settlement, such as payment of medical bills, compensation for lost wages, and damages for pain and suffering, constitute reparations for the damages you suffered as a result of the injury. Compensation for these damages aids you in recovering from your injuries, repairing your life, and making it whole again.
Thus, the federal government does not consider most personal injury settlement funds income and will not impose taxes on most portions of your settlement. The ruling holds true whether the compensation comes in a lump sum, a monthly payment, or some other payment plan. As always, however, there are exceptions to the policy, most of which deal with settlement funds over and above the amount awarded to cover your physical, financial, and emotional damages.
Do You Have To Pay Taxes On A Personal Injury Settlement In New York
Whether or not you must pay taxes on apersonal injury settlement in New York depends on the type of compensation youreceive. If you suffered a physical injury, you are not taxed. Damages for anemotional injury unrelated to a physical one will trigger New York taxes. Sincethe laws regarding federal taxes on personal injury settlements are virtuallyidentical, you will likely owe taxes to the U.S. Treasury as well.
A New York City personal injury lawyer at Douglas and London will protect your rights and help you receive the maximum compensation you deserve for your injuries. Our seasoned attorneys have recovered more than $4 billion for clients in settlements and verdicts.
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Scholle Law Sheds Truth On The Often Misunderstood Issue Of Tax Liability On Personal Injury Settlements In Georgia
The issue of taxation is complicated.
Whether you are talking about income tax, corporate taxes or the many other taxes that hard-working Americans pay, the topic of taxes is voluminous and ever-changing.
In this article, Atlanta accident and injury attorney Charles Scholle discusses the issue of whether or not Georgia personal injury settlements are taxable. By breaking down the different components of a personal injury settlement, we seek to provide a thorough evaluation of how each part relates to potential tax liability.
Questions To Ask A Tax Professional About Your Injury Settlement
Does all this have you confused? Are you concerned that your Florida injury settlement can wreak havoc on your finances come tax time?
Rather than wait and hope for the best, consult with an experienced tax professional . They can help you take action now, such as by making quarterly payments.
When doing so, ask questions such as:
- What type of information and documentation do you need from me?
- Is any of the money I received taxable?
- How does the IRS determine what is and isnt taxable?
- What impact does the injury settlement have on other taxes that I may have to pay?
Your Florida tax professional can answer these questions, among others, to ensure that youre making safe financial decisions. Even if you learn that your Florida injury settlement is taxable in some way, its better to find out sooner than later.
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Taxable Income And Wages
If you lost time from work while recovering from your injuries, your personal injury settlement would include an amount to reimburse your lost wages.
You are required to disclose all income when filing your annual income taxes, including the lost wages portion of your injury compensation. The government expects you to pay income taxes, regardless of who paid your wages.
However, you need to know when the IRS counts other types of settlement compensation as ordinary income for tax purposes, including:
- Interest paid on the amount of your settlement
- Punitive damages
- Awards for non-injury claims, like a breach of contract
- Attorney fees where the underlying recovery is included in gross income
Punitive Damages
Punitive damage awards are taxable, although most injury settlements wont include them. Punitive damages are awarded in high-dollar lawsuits, like defective medical device cases, to punish corporate wrongdoers.
Do You Have To Report A Personal Injury Settlement On Taxes
The IRS is notorious for taxing any source of income. Gambling winnings are taxable. If you rob a bank, the IRS expects you to include that on your tax return. So, what about your personal injury settlement?
Typically, you do not have to report money from a personal injury case on your income taxes. However, depending on what type of damages you were awarded for your case, you may have to pay taxes.
For a free legal consultation, call
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Contact A Knowledgeable Lawyer For Help
A knowledgeable attorney, like those at Pfeifer, Morgan & Stesiak, is well-versed in complex legal issues, such as taxes on injury settlements. We can work tirelessly on your behalf to maximize the non-taxable portion of your award.
Contact our office in South Bend for a free no-obligation review of your case. We work on a contingency basis, so there is never any fee for you unless we win a favorable compensation on your behalf.
You can either call us at or fill out the Free Case Review form.
How Do I Know If I Have A Bad Lawyer
Signs of a Bad Lawyer
- Bad Communicators. Communication is normal to have questions about your case. …
- Not Upfront and Honest About Billing. Your attorney needs to make money, and billing for their services is how they earn a living. …
- Not Confident. …
- Not Empathetic or Compassionate to Your Needs. …
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Tax Implications Of Settlements And Judgments
The general rule of taxability for amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code Section 61 that states all income is taxable from whatever source derived, unless exempted by another section of the code. IRC Section 104 provides an exclusion from taxable income with respect to lawsuits, settlements and awards. However, the facts and circumstances surrounding each settlement payment must be considered to determine the purpose for which the money was received because not all amounts received from a settlement are exempt from taxes. The key question to ask is: “What was the settlement intended to replace?”
General Damages May Be Taxed
The key point is that special damages are as long as they are directly related to your physical injury are not taxable. However, general damages like emotional distress from employee discrimination, for example, may be taxed. If you make a claim for loss of enjoyment because a spouse died in a car accident, your claim may be taxed since you havent suffered any physical injuries.
If your settlement includes emotional distress or loss of consortium, for instance, because of your physical injury, your compensation cant be taxed.
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How Our Attorneys Can Help
An attorney can ensure you file for all the damages available to you in your personal injury settlement. You dont want to leave anything behind and settle for less than you deserve. An attorney can also speak to the insurance company on your behalf to ensure you dont get tricked into settling for an amount that may sound great at first blush but is actually more of a lowball offer.
Dont let taxes deter you from obtaining legal representation. This is playing precisely in the insurance companys favor. They may try to convince you to take a fast tax-free settlement early that only benefits them and leaves you with scraps. Always fight and negotiate for the compensation that you deserve.
Emotional Distress May Or May Not Be Taxed
Your personal injury settlement may also include emotional distress, which is considered non-economic damages similar to pain and suffering. This compensates you for the psychological or emotional injuries you suffered due to your injuries. The IRS may tax your emotional distress compensation depending on the circumstances that caused it.
The IRS will not tax your emotional distress compensation if it stems from your physical injuries. On the other hand, if your injury is the emotional distress itself, the IRS will tax it minus the amount you’ve already spent for your injury-related medical expenses.
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Are Punitive Damages Taxed
Yes, in most cases punitive damages are subject to taxation. Punitive damages are paid by a defendant as a form of punishment when it is determined that their conduct was especially outrageous or egregious. The objective of a punitive damages award is to effectively “make an example” of the defendant and hopefully deter other individuals from engaging in similar conduct.
Do Personal Injury Settlements Get Taxed In Philadelphia
If you receive compensation from a personal injury settlements or lawsuit, you probably have questions about the tax liability of the money you received. Whether you must state the settlement proceeds as taxable income will depend on the specific circumstances and facts of your case.
Generally speaking, yes, your personal injury settlement may be taxed in Philadelphia, but not all of it. Remember that a settlement might include multiple elements that each party has allocated. For instance, a settlement agreement might include lost income or back pay, medical expenses, legal fees, and emotional distress, among others.
There are also exemptions to most tax-linked and legal rules. This is why consulting with an experienced Philadelphia personal injury lawyer before accepting the other party’s settlement offer is very crucial. Your lawyer can provide you with a more in-depth assessment of the potential tax consequences of your settlement and negotiate a settlement amount that will cover all your damages.
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How Are Attorney Fees Treated
There is a question about the amount on which you must pay taxes. Your attorney works on a contingency basis in a personal injury case. They will take a percentage of your total recovery as payment for their services.
This is an issue if your case results in a large award of punitive damages. You may need to pay taxes on the entire amount of the punitive damages award, including the amount that is paid to your attorney.
This is something that you need to plan for at tax time if you have received a large jury verdict.
The same thing applies if you have received a settlement, and there is part of that settlement that is taxable.
Does A Personal Injury Settlement Require Tax Reporting
No, a personal injury settlement doesnt require tax reporting. They are one of the few lawsuit types that are tax-exempt.
However, most settlements from other lawsuits are taxable, meaning the party winning the lawsuit must pay a portion of their reward to the IRS.
Most settlements and verdicts are not taxable under federal or state law. Neither the IRS nor your state can tax you on the settlement or verdict proceeds in most personal injury claims.
Federal tax law excludes damages from personal injuries or physical sickness from taxpayers’ gross income. Both lump sum and recurring payments are eligible for this tax-free status.
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How Does A Personal Injury Claim Work Who Qualifies To Claim
You must meet certain criteria to be eligible to make a personal injury claim. These are as follows:
- Firstly, someone must have owed you a duty of care at the time and place of the incident, for example, your employer or a medical professional.
- Next, they must have breached this duty of care.
- Finally, this breach must have caused you to be injured.
Therefore, it is important that you establish if anyone is at fault for your injuries and, if so, gather evidence proving this.
Continue reading to learn more about the evidence that can be used to prove personal injury claims. Also, you can speak to a member of our team for free legal advice.
Damages Relating To Physical Sickness
Then, you are also entitled to non-economic damages for your accident injuries. These are damages that relate to your physical injury or sickness.
As your personal injury attorney would explain, this would include the following elements of damages:
- loss of enjoyment of life
- loss of reputation
- permanent disfigurement
In addition, there are also possible punitive damages , and these have their own special rules.
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Why Are Most Settlements Not Subject To Personal Income Tax Rules
One of the main reasons why personal injury settlements are not subject to personal income tax rules is because, as a general rule settlements refer to awards for damages and dont include wages or other types of compensation.
That means that you wont have any taxes taken out which would otherwise be collected by your employer from payroll on behalf of your income.
Another reason why you wont need to pay taxes on your settlement is that the money wasnt obtained as a wage or salary. Usually, if a person needs to pay personal taxes its assumed that they are receiving compensation for work and not just damages from an injury case.
Special Rules For Medical Expenses
In most cases, the payments that one receives for medical expenses are completely tax-free. This makes perfect sense because this is not money received by the plaintiff. Instead, it is paid directly to medical providers who provide treatment.
According to the Internal Revenue Service, there is one way that you may need to pay back some of your medical expenses payment in tax.
If you decided to take an itemized deduction for medical expenses in a prior year , you would need to pay this back to the government with your tax return.
You do not get to keep this tax deduction if you get a later settlement.
For example, if you are seriously injured in a car accident and will likely have ongoing medical expenses related to your injuries. These future medical expenses would likely not be taxable as part of a car accident settlement with an insurance company.
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Compensation For A Physical Injury Or Illness Is Tax
Compensatory damages are just what they sound like. Their purpose is to try and make the injured person whole. They compensate the plaintiff for medical expenses, lost wages, emotional distress, and pain and suffering. These are generally not taxed by either the Internal Revenue Service or New York State law, each of which has the same requirements and exceptions to their rules which are as follows.
Ensure That As Much Of Your Settlement As Possible Is Non
Sometimes you might have two claims against the defendant, one of which relates to a personal injury and one of which does not. In this case, especially if the personal injury claim is much larger than the non-personal injury claim, you would want to explicitly state in the settlement agreement what amount of the settlement relates to the personal injury claim and what amount of the settlement relates to the non-personal injury claim.
While the IRS can always challenge the non-taxability of a settlement, specifically allocating your settlement like this gives you the best chance of having most of the settlement excluded from taxation.
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Punitive Damages Are Taxable
Punitive damages are one of the ways that you may receive money in a lawsuit. However, this does not come in the form of a settlement agreement because the defendant never agree to pay these damages.
They are awarded by the jury to punish very bad conduct on the part of the defendant. They are very rare, and they are only meant to reach some of the most extreme examples of negligence and recklessness.
These are the types of damages that could greatly magnify your award. When you see jury verdicts for eight and nine figures, chances are that they include punitive damages. This form of compensation is taxable. The reason why is that this is thought of as a monetary reward for the plaintiff, even though its prime purpose is to punish the defendant.
Accident victims would report this as other income on their income tax returns.
