You will ultimately find that many of the damages that you receive from personal injury cases are not taxable, although there are a few exceptions to this rule. Throughout the course of this brief guide, you will learn just a bit about what sort of damages you can expect to pay taxes on and which of those damages are generally tax-free.
Physical Injury
Most personal injury cases are filed due to the fact that the claimant has suffered from a physical injury of some sort. If you have sued an individual or entity for damages, and those damages relate to a physical injury or sickness, then you will not be taxed on those damages at all. This means that any damages that were used to cover your medical bill, suffering or pain, and other types of duress may not be taxed by the federal or state government. This rule applies whether you settled for your damages or you went before a civil court and it ruled in your favor.
Exceptions
There are some notable exceptions to this rule. If the basis of your claim rests on the fact that you breached a contract and breaching the contract caused your physical injury or sickness, then you can be taxed on the breach of contract itself. If the court has awarded you punitive damages in addition to the damages meant to cover your physical injury or sickness, then these damages can always be subject to federal taxes.
Emotional Injuries
Emotional injuries are not taxable if and only if they arise in conjunction with or have been caused by the physical injury in question. If you filed a personal injury claim and are only seeking damages based on mental trauma or emotional injury, then you can become subject to being taxed by both the IRS and your state government.
Ensure Non-Taxable Damages
There might be cases where you have two claims filed against a single defendant. For example, you might have one claim that is based on a personal injury and one that is not. In the settlement agreement, you will need to make it perfectly clear which settlement amount relates to which claim, especially if the amount that you will receive under the category of the personal injury claim is significantly more than the non-personal injury claim. This is due to the fact that you very well may be taxed for the non-personal injury claim, but you most likely not have your personal injury settlement taxed. For further assistance, contact a local personal injury lawyer, such as one from Hornthal Riley Ellis & Maland LLP.
Share
