via Tumblr hobbsr04.tumblr.com/post/114733400187 via Tumblr hobbsr04.tumblr.com/post/114731332147 via Tumblr hobbsr04.tumblr.com/post/114727973132 via Tumblr hobbsr04.tumblr.com/post/114724382927 via Tumblr hobbsr04.tumblr.com/post/114720623057 via Tumblr hobbsr04.tumblr.com/post/114718142012 via Tumblr hobbsr04.tumblr.com/post/114714460032 via Tumblr hobbsr04.tumblr.com/post/114710852662 via Tumblr hobbsr04.tumblr.com/post/114708510492 via Tumblr hobbsr04.tumblr.com/post/114706025172 via Tumblr hobbsr04.tumblr.com/post/114703454647 After a year of back and forth negotiations, countless doctor’s visits, and lots of pain and suffering, your lawyer got you a settlement award for your personal injury claim. Congratulations! You now get to pocket that money and go on your merry way. But, wait just a second. The tax man would like to speak with you real quick. Part of that settlement you got might belong to him. So, is your personal injury settlement award really taxable? Yes and No Whether or not a settlement award is taxable depends on what it compensates you for. For example, you were injured at work by a rolling office chair breaking your knee caps, and your settlement award was: $10,000 Lost wages $20,000 Medical Bills $30,000 Pain and Suffering $40,000 Punitive Damages $5,000 Interest What do you have to pay taxes on? Lost Wages Money you earn is taxable. So, a settlement award that compensates you for lost wages is also taxable. Medical Bills Damages for physical injuries are not taxable. If the medical bills you incurred were for physical injuries, then the award meant to compensate you for medical bills are not taxable. However, if you’ve already deducted your medical bills on previous tax returns, then the settlement is taxable. Pain and Suffering Again, remember that damages for physical injuries are excluded from your income. As long as your pain and suffering arose from a physical injury, such as breaking said knee caps, then the settlement award is not taxable. Interestingly, the IRS believes that emotional distress, such as depression or anxiety, are not physical injuries. So, any amount awarded to compensate for emotional distress is taxable. But, if the money was meant to reimburse for medical bills, such as psychiatric treatment for depression, then it is exempt from taxation. Punitive Damages Punitive damages are meant to punish the defendant for bad behavior, not to compensate you for an injury. As such, punitive damages are always taxable. No ifs, ands, or buts about it. Interest Some states add an interest award to the judgment for the time the case was pending. For example, your lawsuit was pending for a year. The court adds one year of interest onto the judgment. This amount is considered unearned income and is taxable. You can also get interest on a judgment if the defendant delays payment. If a defendant waits two years before paying a judgment, you get two years of interest on top of the amount awarded. This amount is also taxable. Going back to our scenario, assuming that there are no medical deduction exceptions, the $60,000 award for lost wages, medical bills, and pain and suffering is not taxable. The $45,000 award for punitive damages and interest is taxable. If you received a personal injury settlement and are unsure of your tax liability, an experienced tax attorney may be able to help. Related Resources: Browse Tax Lawyers by Location (FindLaw’s Lawyer Directory) NY Woman Sues for Puppy’s Pain, Suffering (FindLaw’s Injured) Should You Settle Your Injury Lawsuit? (FindLaw’s Injured) How to Enforce a Settlement (FindLaw’s Injured) from Injured blogs.findlaw.com/injured/2015/03/is-your-personal-injury… via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16732771097 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16754219019 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16940619595 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16754604159 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16754880609 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16734048017 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16755378889 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16940935001 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16754484668 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set… via Flickr www.flickr.com/photos/87814799@N02/16941130092 via Blogger hobbsr04.blogspot.com/2015/03/is-your-personal-injury-set...
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