How Are Lawsuit Settlements Taxed?
If you have been injured in an accident or incident and the injury was caused by another individual or entity, you should consider contacting a personal injury attorney to get some guidance on how to proceed with filing a personal injury claim or lawsuit. The damages that can be recovered in a personal injury claim or lawsuit are designed to help cover the expense of medical treatment, medication, and absence from work. Personal injury attorneys usually work on a contingency fee, which means that they only get paid if you win a settlement. If you receive proceeds from settlement of a lawsuit, you may have questions about whether you need to report the proceeds on your tax return. First, because your settlement amount is for the pain and suffering you endured, it is not technically income, and usually you do not owe any state or federal income taxes on it. However, there are some exceptions. If your settlement specifically reimburses you for out-of-pocket lost income, you could be liable for income taxes on that part of your settlement. If your settlement is made confidential by a provision in the settlement agreement, you may face tax consequences. If your settlement reimburses you for out-of-pocket medical costs for which you took a medical deduction from your income taxes, you could also owe taxes on those amounts. However, if you took no deduction, you owe no taxes on the medical reimbursement part of your settlement. But as with most tax questions, these are gray areas, subject to interpretation and differing opinions. And because there is no clear or accurate way to separate how much of your lump sum settlement award is for lost income, how much is for reimbursement of medical bills, and how much is for general damages, that interpretation is up to you. If the IRS or state tax people audit you, there is usually no specific basis for an auditor to assign a portion of a personal injury settlement to lost income. And in most cases, the auditor will not even bother to look at a personal injury insurance payment unless you previously claimed large medical deductions arising out of the cost of your treatment for accident-related injuries. While the IRS says that money received from a settlement or jury award should not be taxed as it is meant to help compensate injury victims for their physical injuries and emotional distress, you should consult with a tax professional before deciding whether or not to list your settlement proceeds as income on your tax return.
Speak with a Car Accident Attorney Today!
As you can see, there are many aspects of personal injury cases that are complex. After an accident or injury, it is vital to contact an experienced attorney as soon as you can to ensure your rights are protected. A lawyer can evaluate your case, advise you of your options, and help you move forward if you have a compensable personal injury claim. Simply connect with one of our personal injury lawyers so that you can obtain vital information on how to begin the process of filing a claim or filing a lawsuit. At Suarez and Montero, our policy is that if you don’t recover compensation, you won’t pay any fees for our services. Not to mention, we also provide free case consultations where we assess the circumstances surrounding your case and give you an objective overview of what steps you can take going forward if you decide to act against the atfault party. For over 19 years, we have delivered quality legal representation for people who, through no fault of their own, have been injured in all types of motor vehicle accidents. We are available 24/7 to give you a free, no risk case consultation.
We serve clients throughout Florida including those in the following areas:
Miami-Dade: Aventura, Coral Gables, Doral, Fontainebleau, Hialeah, Homestead, Kendall, Miami, Miami Beach, Miami Lakes, North Miami, Tamiami, and Westchester.
Broward: Fort Lauderdale, Hallandale Beach, Hollywood, Pembroke Pines, and Weston; and Palm Beach County including Boca Raton, Lake Worth, and West Palm Beach.
