Do You Have To Pay Taxes On Your Personal Injury Settlement? Consider These Situations
When you are in a car accident, you may find yourself suffering from a variety of injuries and hardships. A personal injury attorney can help you get compensation for your pain and suffering. When your lawyer wins your case and you receive a settlement amount, you may worry about how much you will owe in taxes when it's time to file. The good news is that you may not always owe money. Consider these situations where you may or may not owe taxes on the compensation you receive.
Situation #1: Money is Going to Medical Bills and Expenses of Injuries
It's no secret that medical bills can really pile up after you are injured in a car crash. In fact, a huge portion of the expenses incurred after an accident may be medical costs, but you are likely to be reimbursed for medical expenses as part of the financial settlement for your case. This portion of your settlement is usually exempt from taxation since it is simply reimbursing you for money you had to pay for your medical care.
Situation #2: You Receive Punitive Damages in the Settlement
Although it's rare for a victim of a car crash to receive punitive damages, it does happen. Punitive damages are typically awarded as a punishment to the defendant to deter them from making the same mistakes again, and they may be awarded if the driver caused the accident because of misconduct such as driving under the influence of drugs or alcohol. No matter what the problem was with the driver, punitive damage are taxable and should be reported to the IRS.
Situation #3: You Are Compensated for Missing Work Because of an Injury
When you are seriously injured in a car crash, it can be impossible to return to work right away. Depending on the severity of your injury and the nature of the work that you do, you may not be able to return to the same job at all. If this is the case, you may receive financial compensation for your missed work and lost wages as part of the settlement in your case. If you are compensated for lost wages, you have to pay taxes on them in the same manner as you would if you had earned them through work.
Finally, if you are not sure whether you will need to be taxes on your personal injury settlement after an automobile accident, talk to your lawyer. An experienced attorney will be able to answer questions about what you can expect and how you may best report your settlement. Contact Hoffman, Hamer & Associates, PLLC for more information.