So, you were injured and you received a settlement; now you’re wondering if you have to pay taxes on that settlement. Although there is a good chance the answer is no, be sure to recognize the fact that that’s not always the case. Because the law can be complicated, it’s important that you take the necessary steps to understand exactly what your taxes will require.
Talk to the Experts
Only a tax advisor can provide you with specific information regarding your taxes. However, talking to your personal injury lawyer will help you understand the best questions to ask your advisor.
Because the amount of taxes you may or may not have to pay depends on the details of your settlement, speaking with experts is a good way for you to fully recognize the nature of your unique situation. A lawyer will help you comprehend the language of the Internal Revenue Service (IRS) regulations regarding the taxability of judgments. He or she can break the laws down for you so that you are confident in your understanding of its relationship to your circumstances and certain that you pay only what is required of you.
When it Come to Medical Expenses and Injuries…
The money in your settlement that accounts for compensation of medical expenses, lost wages and the negative physical effects of your injury is typically not subject to taxation. This is for the simple reason that the money you were provided for these damages was meant to cover your losses, meaning this law exists to protect you.
What about Vehicle Damage and Lost Income?
Good news: If you received money from a car accident to repair your vehicle, that compensation is also not subject to taxes. This also covers the money you might have received for a rental while your own was in the shop getting fixed.
If you received compensation for lost income while you were unable to work, that money is taxable. Because the funds you would have received while on the job also would have been subject to income tax, the law says that those you were given to make up for what you were unable to earn should be taxed as well.
If You Were Awarded Punitive Damages…
Sometimes a personal injury settlement means that the victim will be awarded punitive damages. This is generally only in cases where the defendant practiced outstandingly bad behavior, but it still a possible component of a settlement. Keep in mind that this money is usually subject to taxation.
How do I Know for Sure?
Talking to a personal injury lawyer will give you the basics on the taxability of your settlement. But it’s also important that you speak with a tax expert to receive more concrete and detailed information on complicated, circumstantial questions. When it comes to the legality of your finances, always consider getting a second opinion from a professional. Speaking with experts will not only give you answers, it will give you answers you can feel comfortable with and confident in.