Taxes And Personal Injury Compensation

When a careless driver has impacted your life, you may be entitled to compensation. Personal injury compensation includes payment for pain and suffering, medical expenses, lost wages, and more. To help you make sense of these issues, read on to find out whether or not your personal injury compensation may be subject to income taxes.

What is Meant By Damages

When it comes to personal injury compensation, the money you are owed is known as money damages. There is more than a single category of money damages and each category might be viewed as taxable or not taxable by the IRS. It should be noted that this article is no substitute for legal or tax advice. This issue is complicated, so seek a personal injury attorney before you act. Read on to learn about each category of personal injury damage and how your tax situation might play out.

Medical Expenses: In most cases, any funds recovered due to medical expenses are non-taxable. However, if you have already filed a tax return where you listed those medical expenses as a deduction, the amount you deducted is considered income once you are compensated for that expense.

Lost Wages: When you lose some of your salary due to an accident, the compensation you receive as a result is taxable. All normal deductions (like FICA, state taxes, etc) will be deducted from this part of your compensation just as if you were earning it.

Pain and Suffering: This personal injury category deals with the way your physical injuries have affected your emotional well-being. All compensation for this form of damage is non-taxable.

Mental Anguish: This form of damage is often confused with pain and suffering. Pain and suffering is always based on your physical injuries, but mental anguish stands alone. Not all personal injuries are physical. Cases of libel and slander might result in a payment for mental anguish or emotional trauma and that category is taxable.

Punitive Damages: When you bring a personal injury case, the judge always has an option to impose an additional award. Punitive damages serve to send a message to the wrongdoer and often represent a large financial payment to the victim on top of other compensation. Punitive damage awards are taxable.

Interest: The personal injury process can be long and it might be several months after your accident before you get paid. In some cases, the court will add interest charges to your compensation. That interest money is taxable.

As you can see, the vast majority of money damages are not taxed. Seeking personal injury compensation is a worthwhile pursuit even if you do owe a bit of it on taxes. Speak to a personal injury attorney to find out more about the damage categories above.

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Communicating With Your Lawyer Few things are as intimidating as facing a lawsuit, but if you aren't careful, you might end up struggling with legal problems at some point in time. I know that I never expected to be left battling a legal drama, but after I began working with a team of professionals to create a business, I ended up facing some serious issues. I was nervous about what the future would hold, but I didn't want to give up either. I worked with a lawyer to take care of every aspect of the lawsuit, and it was cool to watch things get better. Find out more about this blog by reading these posts.




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