Tax Implications of Personal Injury Suits
Posted on Friday, March 15th, 2019 at 9:54 pm
In the midst of tax season we are all thinking about income and tax payments or refunds. If you have proceeds from a personal injury suit, or are contemplating a personal injury suit, you might have questions about the tax implications those proceeds might have. Generally, the proceeds of a personal injury suit are non-taxable. This is not a hard and fast rule, however, and each case needs to be examined independently. There is also the possibility that a portion of the proceeds are taxed. It is important to bring these questions up during settlement negotiations so that you know the implications of this new “income” you are receiving. You do not want your settlement amount to go straight to the IRS.
There is the possibility that some damages from a personal injury suit can be taxable. The way that damage amounts are classified in a settlement agreement can make the difference between tax liability or no liability at all. These damages include:
- Lost Wages: Reimbursement for lost wages can be treated as taxable income. Lost wages includes the amount awarded to cover the wages lost while a person is recovering the wages awarded if an individual is permanently injured. Wages are usually always taxable. The fact that the wages are part of a personal injury damage amount does not eliminate the tax liability.
- Interest: If there is interest earned on the damage amount, there is the potential for tax liability.
- Emotional Suffering: Damages that are awarded under the category of emotional suffering may be taxable income.
- Punitive Damages: If punitive damages are awarded in the settlement amount, the amount may be taxable income.
Reducing Tax Liability
When you hear that there is the possibility that taxes will be paid on a damage amount, you might be nervous to file a personal injury suit. This should not be a deterrent. There are ways and strategies to reduce the tax liability you might owe on the proceeds of a personal injury settlement.
- Structuring Damages: If the damage amount is large, it can be structured in a way that reduces tax liability. This decision is part of the settlement negotiations and an experienced personal injury attorney can be helpful.
- Proper Classification: Since only some of the categories of damages in Georgia hold potential tax liability, making sure that the damages awarded are properly classified can save you from paying taxes.
- Attorney Help: Working with an experienced attorney can be your best bet in dealing with settlement amounts and tax liability. An experienced attorney will know the way settlements should be structured and damage amounts classified to limit your tax liability.
The personal injury attorneys at Jonathan R. Brockman, P.C. are here to help you with all of your personal injury suit needs. Do not let the fear of tax payments deter you from receiving the compensation you might be entitled to after an injury. Our attorneys work tirelessly to get you the maximum amount of compensation and on the road to recovery. Contact us today for a consultation.