After a serious injury, you need financial security that you may have struggled with since your accident. You may be unable to work, or you may have long-term, expensive surgeries. Your personal injury settlement should give you that security and peace of mind.
But tax season will roll around eventually. What will happen to your claim then? Will you have to pay taxes on your personal injury settlement?
The answer is complex, and it may depend in part on the types of compensation you’ve received. Because of this, you may need to discuss with a lawyer the effects of taxes on your personal injury settlement. Your lawyer can help you get the max settlement without losing it all to taxes.
Taxes on Your Financial Recovery
Generally, you don’t have to pay taxes on the funds given to you for the costs of your injuries and recovery. If you didn’t take a deduction for the expenses in the past, you may be able to keep the full amount.
For example, let’s say you slipped and fell in a store a year ago, and you suffered a severe concussion. You didn’t include the hospital bills on your taxes at the time for a deduction because your Orange County injury lawsuit was underway. When you receive compensation for the economic damages you suffered, you don’t have to pay taxes on that amount.
Similar rules are applied to your non-economic damages, or the mental and emotional losses you suffered because of the accident. As long as these non-economic damages happened because of your injury or illness, you can keep the full amount from your settlement without paying taxes on these losses.
Exceptions to the IRS’ Rule
But not every part of your personal injury settlement is definitely yours, without any taxes to be paid. The exceptions can be costly. For example, you may have received compensation for the loss of income you suffered while you were unable to work. Because this is a replacement for your missing income, this amount can be taxed.
Interest on your settlement can also count as a part of your income, and punitive damages are also usually taxable. All these exceptions can lead to serious losses due to the costs of your taxes.
But paying your taxes on a personal injury settlement shouldn’t bankrupt you. Your Orange County personal injury lawyer can help you understand what you’ll pay in taxes before your claim is settled. They can also help you maximize your settlement, even if you have to pay taxes on some parts of your claim.
Talk with a Personal Injury Lawyer About Your Settlement
When you’re injured, you need to know that you no longer have to worry about the costs of your accident. Hiring a lawyer from Kohan & Bablove LLP can help you get the guidance and assurance you need about taxes on your personal injury settlement. If you’re worried about your financial recovery and you need help, reach out to a lawyer for guidance. Call 1-844-404-2400, or fill out the online contact form below.