Settlement Amounts: To Tax or Not to Tax?


Posted May 9, 2019 by crowsonlaw

This article discusses the different types of settlement awards that are taxable and those that are non-taxable.

 
The journey to getting an accident settlement or a trial verdict is long and arduous. It entails a long and exhausting process to fight for compensation after an accident that results in your injury and continued pain. However, after this long and hard fight that you have won you may find that Uncle Sam expect something from your settlement amount or compensation award.

Once a plaintiff has received their settlement you can finally put that chapter behind you; you are able to catch up on your medical bills and plan on paying the future bills to come. However, what you may not be aware of is that you are expected to pay taxes on the settlement money that you have received. Determining your payment and how much is to be paid depends on the facts and circumstances of your case. The best personal injury lawyers [https://www.crowsonlaw-wasilla.com/alaska-personal-injury-lawyers/] can be of assistance getting you reimbursed for medical bills, lost wages and pain and suffering. However, it may be best to talk to a tax advisor in order to get official tax advice.

When it comes to medical damages from car accidents one article states that these are not taxable for the most part. “The largest percentage of the settlement award for many accident victims is for medical expenses. Some of the more common-and severe-injuries include whiplash, spinal cord injuries, traumatic brain injuries, burns and back injuries. If you've received a settlement for personal injuries, you do not pay taxes on that money. These types of damages are not taxed as they are seen as reimbursement for your out-of-pocket losses. However, the story is different if you took a medical itemized deductions related to the injury in prior years. The IRS states, “You must include in income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to the extent the deduction(s) provided a tax benefit.”

People who are involved in car accidents often experience emotional distress. Such emotional distress may include depression, anxiety or post-traumatic stress disorder (PTSD) due to the trauma they experienced during the car accident. When it comes to taxes relating to emotional damage one article states that “it’s complicated”. Generally, the IRS divides this type of pain and suffering into two categories: emotional distress “originating from a personal physical injury or physical illness”, this is treated in the same manner as the medical damages. As a result you will not pay taxes on such emotional damages because they stem from a physical injury. However, proceeds from emotional distress that do not originate from a personal injury or physical illness are taxed. For example, if a car accident victim developed a phobia of driving after the accident but it is not because of an injury such emotional distress damages must be taxed.

If your car accident resulted in you missing days, weeks or months from work as a result of the injuries you sustained or saw you having to take vacation time in order to attend to your injuries, you will likely receive compensation for lost wages. Lost wages are taxed as they are viewed as being similar to the wages you would have earned and would have paid taxes on. The same is true where an individual has lost profits from their trade or business due to their injuries; such profits would have been taxed as a business income.
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Issued By Crowson Law Group Wasilla
Phone (907) 331-0694
Business Address 1981 E. Palmer-Wasilla Hwy Suite 220 Wasilla, AK 99654
Country United States
Categories Legal
Tags the best personal injury lawyers , Wasilla accident
Last Updated May 9, 2019