When seeking personal injury compensation, one of the questions that eventually comes up is whether the money you receive will be taxable. Most personal injury claims never go to trial and are resolved with a settlement. You need to know what the real amount will come to before you make a decision on whether to accept an offer. Taxes can have a big impact, but most damages for physical injuries or sickness are not taxable. Each case is unique and you should talk to your personal injury attorney about how taxes may affect your settlement.
Different Types of Damages
Compensatory damages for your physical injury or sickness are generally not taxable. This includes compensation for your monetary losses such as medical expenses, lost income, and lost earning capacity. Damages for your pain and suffering are not taxable. Damages for emotional distress may be taxable if they exceed the amount of damages received for medical expenses.
Punitive damages are not compensatory. They are meant to punish the wrongdoer instead of paying you back for your losses and future losses. Punitive damages are taxable.
If you are awarded interest, the interest is taxable. And it gets complicated if you have already paid some or all of your medical bills and took an itemized deduction for those expenses. Your attorney can help you navigate the murky details and keep you from running afoul of the IRS with your settlement.
There are many complexities to determining how your settlement will affect your taxes, and your circumstances will be unique. Your personal injury attorney can help you understand which portions of your settlement are taxable, if any. Never hesitate to ask these questions before you make a decision on whether to accept a settlement offer. It can make a big difference in the real financial outcome for you.
Deciding whether to accept a settlement offer can be confusing and emotionally charged. Learn more about how taxes may or may not affect your personal injury settlement by calling the Law Office of J. Clay McCaslin at 503-239-1910 or contacting us online right away.