If you or somebody you care about has sustained an injury caused by the negligent actions of another company or individual, chances are you will be able to recover compensation for your losses. This compensation may come through an insurance settlement, or it may happen as a result of a personal injury trial verdict. One thing you do need to know is whether or not the settlement money that you receive is taxable.
When examining the information available from the Internal Revenue Service (IRS), we can see that individuals will not have to pay taxes on any compensation they receive for their medical expenses through a settlement of word personal injury jury verdict. This includes monies they recover for emergency medical bills, physical therapy or rehabilitation, prescription medications, and any long-term ongoing medical needs.
Other Out-of-Pocket Expenses
It is not uncommon for individuals to recover compensation for their out-of-pocket related to the incident. This can include costs for them to travel to and from medical visits, costs to rent vehicles if the incident caused vehicle damage, payment to individuals to come to the house to help with household services, and more. All of this includes expenses that an individual would otherwise not have had if the incident had not occurred. Compensation for these out-of-pocket expenses will not be taxed.
Pain and Suffering
Individuals are often able to recover compensation for both physical and emotional pain and suffering experienced as a result of the injuries, the recovery process, and a loss of quality of life. Pain and suffering compensation can be significant, depending on the severity of the injuries. Again, the IRS will not tax compensation individuals receive for pain and suffering losses after an injury occurs.
This is where the IRS and state revenue departments will begin to collect taxes on part of the settlement. Individuals who recover lost wage compensation will need to pay taxes at the regular rate based on how much they receive. This makes sense because this is meant to be a replacement of wages that an individual would otherwise have been making and paying taxes on. It is imperative to work not only with a skilled personal injury attorney for help recovering compensation but also with a tax attorney if you have any questions about how to pay taxes on this portion of your settlement or jury verdict.
In rare cases, individuals are issued punitive damages along with the compensatory damages mentioned above. Punitive damages are reserved for situations where the defendant in the case, the person who allegedly caused the injury, was grossly negligent or intentional in their actions. These are damages that punish the defendant and send a signal to others that this type of behavior is not acceptable. Punitive damages can be taxed by the IRS.
Working With an Attorney
It is important to work with a personal injury lawyer as soon as possible after you sustain an injury caused by the actions of another. These cases can become complicated, but you will be more likely to recover higher compensation if you have a skilled injury lawyer from Southfield on your side to investigate the incident and stand up to the other parties involved.