Pointers to find out whether the personal injury settlement is taxable or not?
You may have come across various personal injury lawsuits that got settled before the trial. The case stands resolved when you accept the insurance company’s settlement offer and sign the release. So, what will be the next step? You get the money quickly and resume your typical life. However, there might be a few tax issues that may apply to the personal injury case settlement. As a result, you must understand these in detail to be eligible for the compensation.
No tax on compensation
A general rule is that the proceeds coming from personal injury cases are not taxable under state or federal laws. It doesn’t make any difference whether you settle the case after or before filing the lawsuit in court. Moreover, it does not make a difference whether you get a verdict or go to trial. Neither state nor federal governments can tax you on verdict proceeds or settlement.
Exceptions in general rule
Whether you suffer physical sickness or injuries, you might get taxed on damage to a breach of contract. Remember that the contract breach will be the basis of the lawsuit. Punitive damages are taxable. If you endure a punitive damage claim, your attorney will ask the jury or judge to separate the verdict into punitive damages and compensatory damages. Hence, you need a reputed lawyer to understand these in detail. When you reach out to your attorney, you have to be transparent in dealing with compensatory damages and managing the taxes with precision.
Emotional injury claim
The verdict or settlement is non-taxable if it results from physical injuries. For example, if you file a claim for employment discrimination or emotional distress, that is not bodily injury. As a result, the verdict or settlement will be taxable till you prove even slight physical injury.
Try to go for a non-taxable settlement
At times, people have different claims contradicting the defendant, one relating to physical injury and the other not. In these circumstances, if the claim for personal injury is larger than the other one, your lawyer will explicitly state the amount of settlement that relates to personal injury and the remaining amount that relates to a non-personal injury lawsuit. Can you get taxed on your settlement? To find the answer to this, you must consult lawyers. Thus, you need the help of a reputed lawyer who can help you with the best options and make the settlement exclusive.
Legal information and related aspects
Remember that every personal injury lawsuit is distinct. When you work with an advocate, they understand different aspects of a case. It is because they have experience in dealing with similar lawsuits. Along with this, they have expertise in judicial proceedings.
The circumstance and nature of the litigation differ. Since the lawyers have legal information, they get better positioned to help you deal with the lawsuit and grab you the best outcome. For this, you need a reputed legal representative to help you with a personal injury case settlement.