If you are getting ready to receive a lawsuit settlement from a personal injury case, you may wonder if you will be required to pay taxes on the money you receive. The money you receive for your settlement could be taxable, but there is also a chance that the money will not be taxable. It all depends on the reason you received the money.
Money for physical injuries
Personal injury cases are designed to compensate people for injuries they received because of someone else. To win a case like this, you must have proof that you were injured; however, the injuries do not have to be physical injuries.
Any type of compensation you receive for physical injuries is not taxable, so you will not have to worry about paying taxes on the money if it was all designed to cover physical injuries you received.
Money for emotional damages
Receiving money in a personal injury case for emotional damages does not always happen because emotional damages are harder to prove. If you do end up receiving compensation for the emotional damages you have experienced, the money may or may not be taxable.
If these damages can be tied directly to the physical injuries you received, the money will not be taxable. If there is no direct correlation though, you may have to pay taxes on the money. When a settlement contains money for both types of damages, each type will be listed separately on the tax form. This allows you to only have to pay on the amount that is taxable.
Money from other types of damages
There are also times when people receive other types of compensation from personal injury cases, including compensation for lost wages or attorney fees. Any type of compensation you receive for things like this will most likely be considered taxable income, and you will have to include it on your next tax return.
Your personal injury attorney most likely understands this concept thoroughly and may even try to use these rules to your advantage by trying to seek as much compensation for physical injuries as possible.
Going through a personal injury case can take time and can be overwhelming, but your attorney will help you through it. While receiving a settlement is nice after getting injured, make sure you find out if you will owe taxes on the money before you start spending it. Learn more about your situation by consulting with legal professionals such as Vaughan & Vaughan.
Share12 March 2015
When you are involved in a messy car accident, things can get complicated fast. In addition to proving who was at fault, you might also have to worry about healing. However, you don't have to endure long phone calls and complicated insurance paperwork on your own. Hiring an attorney is the key to remaining strong during the aftermath of a car accident. As you think about your own situation, try to figure out if you can do things on your own. If you feel like you need a little help, don't be afraid to talk with an attorney. The information on this website should help you to decide how legal counsel can help you.
