Answers From a Pensacola Personal Injury Lawyer
Hear from Pensacola personal injury lawyer Chris Klotz as he answers the commonly asked question regarding whether a personal injury settlement is taxable.
Video Transcript for Is My Personal Injury Settlement Taxable?
Is my personal injury settlement taxable?
We got this question the other day from a client who is wrapping up their case. And I got to start out by saying this from the very start.
I’m not an accountant and lawyers are very cautious about giving advice on this because you need to talk to a tax professional about whether your settlement is a taxable event or not.
Because it’s very confusing. As a matter of fact, Eric and I were just doing some research on this and we have realized that there’s actually some changes in the law recently.
Call Your Accountant
And so my best answer to this question, “is my personal injury settlement a taxable event on my income tax” is to call your accountant and be very careful about taking any advice that’s not coming from a tax professional who’s up on the current rules.
I’m going to give you some rules of thumb, but I’m not giving you tax advice.
My advice to you is to call your accountant.
But generally, most personal injury settlements won’t be taxable if they’re not related to interest or punitive damages.
If you have an award in your settlement that is for your bodily injury, sometimes even lost wages, sometimes pain and suffering, if there’s a physical component to your injury, the rule of thumb is generally it probably won’t be taxable.
But again, check with your tax professional because I can’t give you accounting advice.
Only an accountant can give you a tax opinion. So spend a few extra bucks. Go get that kind of opinion before you have an end of the year tax close out and make sure that you’re doing the right thing with your personal injury settlement.
Also, let your accountant know that you’ve had a personal injury settlement. That way he or she can give you some advice on what to do.
My name is Chris Klotz. I’m a personal injury lawyer here in Pensacola, Florida at Stevenson Klotz. I would love to talk to you about this issue. If you have some more questions or any other questions that you might have about a case. I’m at (850) 444-0000. Our website is stevensonklotz.com.
Thank you for joining us and I look forward to helping you in the future.
What Is and Is NOT Taxable in a Personal Injury Settlement
If you have received a settlement from a personal injury claim, you may be wondering if it is taxable. Generally, the answer to this question depends on the circumstances and type of damages involved in your case.
In general, any compensation for physical injuries or physical sickness is usually not considered taxable income by the Internal Revenue Service (IRS). This means that money awarded for medical expenses, lost wages (including future lost wages), pain and suffering, and other non-economic damages are typically not subject to taxation. On the other hand, punitive damages—which are intended to punish wrongdoers—are generally considered taxable income and may be subject to federal taxes depending on certain conditions.
What Is a Personal Injury Settlement?
A personal injury settlement is a monetary agreement reached between two parties in an attempt to resolve a legal dispute. This type of settlement typically occurs when the injured party (the plaintiff) agrees to accept a certain amount of money from the responsible party (the defendant) as compensation for any damages they have suffered or losses they have incurred due to another person’s negligence, recklessness, or intentional misconduct.
The terms of a personal injury settlement can vary widely depending on the specifics of each case and may include both economic and non-economic damages such as medical expenses, lost wages (including future lost wages), pain and suffering, emotional distress, disfigurement, impairment, punitive damages, legal fees, court costs, and more. In some cases, a personal injury settlement may also include an agreement to provide the injured party with future medical care or disability benefits.
Contact us if you’ve been injured
If you have been injured due to another person’s negligence and have questions about a possible personal injury settlement, the experienced attorneys at Stevenson Klotz Injury Lawyers can help. Contact us today for more information.
Does a Personal Injury Settlement Count as Income?
Generally, the Internal Revenue Service (IRS) does not consider compensation for physical illness or injury as taxable income. Money received for medical bills, wages (including future earnings), emotional suffering, disfigurement, disability and other non-monetary damages is not taxable. This means that those affected by an injury or illness can receive compensation without worrying about any additional taxation requirements. Settlements received from wrongful death claims are also generally not taxed since the IRS considers them to be part of a personal injury claim. Conversely, punitive damages, which target to punish offenders, are usually viewed as taxable income and may be subject to federal taxation depending on certain conditions.
We Can Help Point You In The Right Direction
If you have questions about how your personal injury settlement may affect when you pay taxes, we recommend you speak to a qualified accountant or other tax professional who can answer any additional questions you may have about whether or not your settlement is taxable. If you’ve been seriously injured due to someone else’s negligence, our attorneys are here to ensure that you get the best possible care and service through every step of the legal process. Contact us today at Stevenson Klotz Injury Lawyers for more information.
Types of Damages That May NOT Be Exempt From Taxes
Some types of damages that may not be exempt from taxation include:
- Punitive damages: These are designed to punish the offender for their reckless or intentional misconduct. While these damages are usually taxable, there may be exceptions depending on the specific circumstances of your case. Speak to an accountant if you have questions.
- Interest received on a settlement: Interest received on a settlement is generally considered taxable income and subject to federal taxes. Talk to a tax professional to find out if this applies in your case.
- Settlements with structured payments: If you have agreed to receive your settlement funds in structured payments, such as an annuity or a series of lump sums, then those payments will likely be considered taxable income and subject to taxation. Find out whether this applies to your case by speaking to your accountant.
- Attorney fees paid by the defendant: In some cases, an attorney’s fees may be paid by the defendant as part of the settlement. If this is the case, you will likely need to report those fees as taxable income. Speak to your accountant to find out if this applies to you.
How to Report Your Settlement on Your Tax Return
If you have received a settlement due to an injury or illness, you may need to include the details of that settlement on your tax return. The best way to do this is to contact a tax professional who can best explain how your settlement should be reported on your tax return.
When reporting the details of your personal injury settlement on your tax return, make sure to provide accurate information regarding any taxable items that may be subject to taxation. This includes punitive damages, interest received on a settlement and attorney fees paid by the defendant.
Should You Seek Professional Help With Your Taxes After Receiving a Settlement?
Yes! If you have any questions or concerns about how your personal injury settlement may affect your taxes, seek help from a qualified tax professional as soon as possible. The experienced personal injury attorneys at Stevenson Klotz Injury Lawyers can provide you with information and resources about the legal process to get your settlement but do not provide tax advice. Contact us to begin your claim.