Do the Injury Claims Settlement Fall Under Taxable Income?

Injury can happen at any time, and getting the claim is also your right. However, often people used to have a doubt that will the winning amount from compensation will be taxable or not? It is a common question of people suffered an injury in an accident. It is quite natural as one might think that, if the winning amount will go in the tax, then what is the need to file a claim as mentioned by a personal injury lawyer orange county.

Do the legal settlements fall under taxable income?

It was back 1966, till that irrespective of the personal injury settlements, all were tax-free. However, the recent laws are stricter, so it has been more restrictive. In the case of Generally physical injuries and physical sickness are non-taxable.

Suppose, a person is injured physically which cost medical expense of $1500. The at-fault party agrees to pay the whole $1500 to the victim. In such a case, the whole amount will be tax-free, and the victim has to not show it in return filing.

However, when a PI settlement with a monetary award is based partially on mental anguish or emotional distress it might be tax-free. If the mental anguish or emotional distress is directly related to a physical injury, then it is considered to be medical and would be non-taxable.         

How much tax one need to pay on the settlement amount?

Remember the claim amount can be taxable, non-taxable, or can be partially taxable. It will all depend on the type of case, and the type of compensation for the injuries suffered. The taxable standing of the personal injury settlement amount will depend on whether or not there was a “physical injury or physical sickness.” Remember it can relate to a motorcycle crash, Uber wreck, truck accident, etc. as a personal injury lawyer Orange County mentioned.

What IRS will look in Personal injury tax

IRS used to look for tax when you are being paid. Paying the taxes is something that you need to deal with while living in California.

Interest

The amount which you receive in a personal injury settlement is attributed to interest is typically taxable.

Lost wages or lost income

The financial settlement awarded along with compensation for the lost wages or loss of income is taxable. You must report it during a tax return.

Punitive Damages

An injured person can be awarded the money which goes above for the normal compensation for injuries. It is meant to punish the guilty person (or defendant). There are certain exceptions, but it doesn’t matter if there are physical injuries or physical sickness. Punitive damages are taxable in general.

Final words

Over here in this article, you can see that several things are there to consider before one can tell you that your injury claim settlement money will come under the tax or not. It is better to contact a personal injury lawyer Orange County for further legal details.

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Created on Jul 18th 2019 01:01. Viewed 423 times.

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