When you receive your personal injury settlement, you may be overwhelmed with joy and relief. With this much-needed financial support, you can start your new life, heal yourself as much as possible, and move forward. However, you also need to think about the tax considerations when receiving a personal injury settlement. Do you have to pay taxes on your entire settlement? Will parts of your settlement be tax-exempt? These are the questions Attorney Joe Lucé can answer for you. If you have specific questions regarding your settlement or taxes, you should confide with your attorney or a certified public accountant. None of what is written in this blog should constitute as financial or legal advice.
When you receive a personal injury settlement, you will often get the settlement divided into separate parts that dictate what each part is for. For example, any compensation you receive for a loss is not taxed. This includes medical bills, out-of-pocket co-pays, medicines, lost wages, property damages, and other losses. Please note you may have to pay taxes on any money you have received to cover future losses, like future wages. Be sure to ask your accountant, as this area of law gets very complex.
Taxable Areas of Settlement
If you have received money to compensate you for emotional distress or any punitive damages, then you will have to pay taxes on all or some of it. The amount you will have to pay for emotional damages will depend on whether you sought medical treatment for your emotional damages or whether they were caused by physical injuries. This is a very fact-dependent area of law that should be thoroughly discussed with your attorney.