A personal injury accident can significantly impact your ability to earn a living. Fortunately, by filing a claim, you can seek compensation to cover medical expenses, lost wages and other damages.
As tax season approaches, you may be wondering if your personal injury settlement is taxable — will you have to pay the government a portion of the money you recovered for medical expenses, lost wages, pain and suffering and other damages? While physical injuries are not taxable, certain aspects of your settlement may be subject to tax laws.
Damages from injury or illness
Typically, money obtained from a personal injury settlement is not taxable under federal or state law. Regardless of whether you settled your case in or out of court, or a had lengthy trial and won, the proceeds you receive from a settlement for a physical injury or illness are excluded from tax laws. This means that damages such as medical bills, lost wages, emotional distress, loss of consortium, pain and suffering and attorney fees are not taxable, so long as you suffer a physical injury or illness.
In certain cases, punitive damages may be issued in addition to compensation from a civil claim. Punitive damages are always taxable and, unlike compensatory damages, are intended to punish the defendant rather than reward you. If your case involves punitive damages, your Bronx personal injury attorney can ask the judge to separate compensatory damages which are not taxable from punitive damages. Always remember to include this compensation on your income tax return to avoid any issues with the IRS.
How interest is taxed
If you receive a large settlement from a personal injury claim and you let the money sit in an account, the accrued interest is taxable. Additionally, if your case is pending too long, you may receive interest on the judgement. Any interest you accrue under these circumstances is also taxable.
Contact an experienced Bronx injury lawyer
The Law Offices of Evan W. Kohn has advocated for injured New Yorkers for 30 years. Whether you are hurt in a slip and fall, car, or other accident, we can help you navigate the law and file a successful claim. To schedule a consultation to discuss your case with a skilled attorney, call 718-409-5500 or contact us online.