Personal Injury Claims: Should You Pay Taxes on Them
People who sustained injuries in car accidents because of another driver’s negligent action may be entitled to different kinds of compensation for their losses. But, getting compensation for such situations can be tricky; however, it can be done. That is why car accident victims must work with a personal injury attorney in Rockford who can walk them through this process. An experienced attorney will partner with financial and economic experts to properly evaluate the worth of a case.
And because most money earned in the country is taxable, you may be wondering if a personal injury settlement is also taxable. Your attorney will help you understand the tax implications of your case. But, you can keep on reading to know the answer to your concern.
Should You Pay Taxes?
Most personal injury claims are resolved outside of court through settlements with the at-fault driver’s insurance provider. But, sometimes cases must go to trial, so both parties can reach a resolution. Once a settlement is accepted or when the at-fault driver pays the jury award, should the award recipient pay taxes?
Thankfully, you don’t pay taxes for proceeds from a lot of personal injury claims. Under federal tax law, damages recovered because of personal physical injuries or illnesses from the gross income of a taxpayer are not taxable. However, some exceptions apply to these rules. These include situations such as:
- Punitive damages. In some personal injury cases, punitive damages can be awarded when the defendant is guilt of gross negligence. This type of damages is taxable.
- When a breach of contract is involved. Damages awarded in personal injury cases that resolve around a breach of contract are taxable. This applies even if you sustain physical injuries because of this breach.
- Jury award interest. Interest can be added to the amount of a jury verdict award for the case’s duration. In some instances, the interest can be significant, depending on the length of time the case has been pending.
The Amount of Compensation You May Get
Personal injury cases are not made equal. And some factors are considered when determining the amount of compensation you may get. How much you will get depends on factors such as the seriousness of your injury, whether you contributed to the accident, the leave of pain and suffering you suffer, and your ability to work. Because of the complexity in determining the worth of your claim, you should not accept any settlement offer from the insurance company without consulting your lawyer.