Individuals who have been seriously injured in an accident can’t afford to be stuck with a devastating tax penalty after they have already suffered so much in an accident.
Many injury victims may be hesitant to move forward with a personal injury claim because they worry what tax implications they can expect if they were to win a sum of money in a personal injury settlement. Will their settlement be taxable? Will they have to pay exorbitant fees to the Internal Revenue Service (IRS) if they win their case?
These are relevant questions, and it only makes sense to prepare yourself for what to expect if you win your case. Below, we go into further details about when you might have to pay taxes on your personal injury settlement and which losses you can be sure you won’t have to pay taxes on if you win your personal injury settlement.
When You’ll Pay Taxes on Your Personal Injury Settlement
The thought of having to pay taxes on the personal injury settlement you are awarded can be jarring. The last thing you want is to have to set aside a portion of it to give to the IRS. The good news is that you will only be expected to pay taxes on the portion of your injury settlement that is for your lost income and loss of expected future earnings.
When you work, a portion of your paycheck is taken out to pay your taxes, and the same will be done with your personal injury settlement. You will need to work closely with your accountant to ensure you are required to pay taxes only on this portion of your settlement.
If you set aside this amount as soon as you receive your settlement, you should have no surprises when it comes time to file your taxes the following tax year. You can always discuss this in further detail with your personal injury lawyer or your accountant after you receive your injury settlement.
Damages That Are Not Considered Taxable Income
You know that only your lost income will be taxed when you receive your injury settlement, but the other losses you are compensated for are not considered taxable income. This includes compensation for the following:
- Diminished quality of life
- Pain and suffering
- Loss of enjoyment of life
- Scarring or disfigurement
- Medical expenses and equipment
- Emotional distress
- Property damages
- Loss of household services
- Unexpected child care costs
Meet with a Boston Personal Injury Lawyer
When you are ready to take action against those liable for the injuries you sustained, but aren’t sure where to start, get in touch with an experienced Boston personal injury lawyer at Joel H. Schwartz, PC. You can schedule a free, no-obligation consultation by filling out the quick contact form provided at the bottom of this page or calling our office at 617-742-1170.