Do I Need to Pay Tax on My Injury Settlement?

Do I Need to Pay Tax on My Injury Settlement?

For anyone who has gone through an injury recently, you might find that you have to file a taxation form for your injury settlement. Whilst most settlements wind up outside of court to avoid any animosity, it’s not always the case. As such you have to understand – whether it goes the full way or not – the legal nature of taxation when it comes to managing your injury settlement.

As soon as you accept the settlement offer from an attorney, the job is done and the case is over; you have won. However, when this happens you have to get the money as compensation from the people/company who seen you injured in the first place. Then you have to pay up the fees to your lawyer, and then you can deal with the tax side of things.

The government has no problem in asking for fees from any injury settlement – surprise, surprise!

Typically, you will be taxed for anything that is a breach of contract if this part of your claim in the first place. Other than that, any punitive damage that you are dealt during the incident is always going to be taxable. If you are dealing with this kind of claim, then your lawyer will always be sure to make it clear with the judge to separate compensation and punitive damages.

This shows that you can prove to the IRS that the damage you took was for physical damages, which are not taxable.

Having these distinctions is vital if you want to make sure that you can get as much of the settlement as you possibly can to keep. Another part of your injury settlement that may need you to put in the hard work in terms of taxation, though, is the judgements interest itself. Most states have court rules that add on some kind of interest to the verdict, usually relating to the length of time that it was being dealt with in the first place.

This builds from the day that you file the suite, so that you can walk away with the best level of interest possible from the incident. However, these are taxable and you can find that this adds a fair amount to the overall finishing price of the claim.

The other time that taxation comes into play is emotional harm – you always pay taxation if you are claiming for emotional damages.

If you are still confused about whether or not your settle is taxable, contact a nearby CPA that specializes in tax preparation.

2017-10-03T22:56:54+00:00 September 15th, 2017|Categories: Blog, Taxes|