When it comes to receiving a settlement, things can get a little bit complicated. From medical bills to mental anguish, there are plenty of cases which you can receive compensation for. However, whether or not this compensation can be considered a tax benefit will depend on the specific type of case.
In this article, we will investigate the different types of cases in which you can receive a settlement as well as the answer to the question: "Are injury settlements taxable?"
If you need help with a claim call us at (678) 251-9309 to schedule a free consultation with a personal injury attorney in Decatur.
Types of Settlements and Their Taxes
- Punitive Damages and Taxes
- Medical Expenses and Taxes
- Personal Injury Settlement and Taxes
- Emotional Distress and Taxes
- Physical Injury and Taxes
Personal Injury Lawyers and Taxable Income
When you start working with an attorney to file personal injury claims, you will want to understand how receiving compensation can affect paying taxes.
Punitive Damages and Taxes
In the court setting, sometimes it is determined that the settlement for medical expenses, personal injury, emotional distress, etc., was not enough punishment for the at-fault party. In these cases, the personal injury lawyer may decide to file for punitive damages. This is intended to be a punishment against the defendant but also increases the overall amount of compensation that the victim will receive.
In these cases, the settlement money for punitive damages is typically classified as taxable income. This is because it does not have a specific purpose, like paying off medical bills, so it is viewed as a regular form of income.
Medical Expenses and Taxes
If you are filing for medical expenses, be it from medical malpractice or an accident at work, you can expect that some of the compensation will be taxable and some of it will not be taxable by federal taxes. The IRS states that once medical expenses reach more than 7.5% of your annual gross income, you can claim the expenses as deductible.
Property Loss and Taxes
Another area in which you can be compensated in a personal injury lawsuit is property damage. Generally speaking, when the compensation for property damage is equal to the value of the property loss damages, you do not have to pay taxes on it.
If the compensation is higher than the approximate value of the damages, then you will need to pay taxes on the amount that is over that threshold.
Understanding Your Tax Burden as a Plaintiff
As the plaintiff in the case, it is important to understand what your tax burden is, and it will vary depending on what you are filing for. For example, most of the time you will not have to pay taxes on the compensation that you receive for medical costs.
However, when it comes to punitive awards or compensation that is above the value of the damages, that will typically be a tax liability. Working with a tax attorney will help you to learn which money you can claim as a tax deduction and which you will need to pay money on.
Working with a Personal Injury Attorney & Settlements Awarded in Lawsuits
By working with a lawyer, you are giving yourself the best chance of having a successful claim. They will also be able to walk you through the process of categorizing your compensation afterward so you understand which is taxable and which is not.
Compensatory Damages & Taxable Income
When it comes to compensatory damages, it will depend on what type it is as for whether or not it will be considered taxable income.
If you are receiving compensation for medical care or property damage, then it will typically not be considered taxable income since it is meant to cover damages that you would not have originally had to pay for.
However, if you are receiving compensation as a replacement for lost income due to physical injury, that amount will typically be taxed as a regular form of income.
Non-Economic Damages & Tax Exemptions
When it comes to non-economic damages, those are typically not considered exempt in tax situations. When you are filing for something that is not related to an injury, such as defamation, any compensation that you receive for that case will be taxed. This is because it is not considered compensation for extra expenses in the same way that compensation for medical care is.
Maximum Compensation Awards & Income Taxes at the Federal Level
When it comes to taxes at the federal level, the same rules apply. With personal injuries, you will typically get a medical expense deduction. However, anything that is meant to replace business income will still be subject to income taxes on the federal level.
Schedule a Free Consultation at Marks Law Group Today!
Filing an accident injury claim can be overwhelming, don't go at it alone. At Marks Law Group we have experience with everything from wrongful death claims to emotional distress claims and understand how to take you through the entire process, from beginning to end.
Call us today at (678) 251-9309 to schedule a free consultation and take these tax matters into your own hands.