People who file personal injury claims typically wish to seek compensation for medical bills, lost wages, and property damage that resulted from someone else’s negligence or carelessness. These claims can result in settlements, which may include more than the amount lost. Some personal injury cases can also lead to punitive damages, which are designed as punishment in addition to compensation. People who are fiscally conscious, however, might wonder if this extra money will end up costing them later in taxes. In most personal injury cases, people don’t have to pay taxes on the settlement or judgment; however, in a few cases, they might have to.
According to the Internal Revenue Service (IRS) tax code, in cases of personal physical injuries or physical sickness, gross income excludes the amount of any damages received, except for punitive damages. While emotional distress isn’t considered physical harm, it is also excluded from taxation as are damages not in excess of the amount paid for medical care or emotional distress.
Any amount that is purely for reimbursement purposes cannot be taxed, including the cost of medical expenses and pain and suffering from your injuries. Likewise, any property damage resulting from an accident can be compensated without taxation.
Taxes do come in whenever any settlement or judgment amount includes compensation for lost income. Income is always subject to the income tax, so you will still have to pay what is essentially the income tax you would have paid had the accident not occurred.
Likewise, in cases where punitive damages are awarded, you are almost always taxed on that settlement amount. However, awarding punitive damages is rare in personal injury cases. They are only granted in circumstances where the defendant has engaged in extreme or shocking behavior as a deterrent for future instances of the same conduct.
While a good New York personal injury lawyer can help you win a settlement, he or she may not be an expert in tax law. If you have more questions regarding your particular case, consult your attorney and a tax professional to ensure you are prepared for any potential taxes you might be facing later.
To begin a personal injury case, don’t hesitate to call Foley & Foley. Our attorneys are dedicated to seeking justice for the victims of personal injury. If you were injured through someone else’s negligence, you deserve compensation for any medical care, rehabilitation costs, and lost wages you may have experienced as a result of the accident. Our skilled Palmyra personal injury attorneys have been helping people seek compensation for decades. We can offer excellent representation with compassionate representatives. Our advocates have helped individuals with cases involving medical malpractice, wrongful death, construction accidents, motor vehicle accidents, defective products, and workers’ compensation. Whether you were injured on the job or you need help fighting a large manufacturer, don’t hesitate to call us.
Contact us at (315) 883-2650 or fill out our online form to schedule your free case consultation today. We look forward to speaking with you.