Are you a victim of a personal injury case? Are you thinking of asking for a settlement with your other’s negligence? If yes, then one of the questions you might ask is, if you are liable to pay taxes for the settlement amount, right? Well, don’t worry! You came to the right place.
Any accident caused by the negligence of the other party comes under the case of personal injury. While you can file a case without a lawyer, a group of Washington car injury lawyers argued that you should get one.
However, there are many kinds of personal injury cases. All you need is to contact the personal injury lawyer according to your type of personal injury. For example, if you are suffering from brain damage due to an accident, you must consider hiring a brain damage personal injury attorney.
Having a personal injury lawyer to handle your case will bring a lot of benefits to your table. They can handle your paperwork and answer a lot of legal questions you might have, including paying taxes for your compensation.
Let’s dig the article to get a detailed understanding of the topic. Shall we?
Contents
Non-Taxable Personal Injury Compensations
According to both state law and federal law, personal injury case settlements are usually non-taxable. Whether you have settled the case before filing a lawsuit in court or after the starting of trial, no government can claim an income tax on your compensation.
But you must know all the situations in which your compensation is out of any income taxes.
- Compensation for Physical Injuries in Road Accidents
Getting fair compensation in the Road accidents is the primary goal of the victims. If you have gotten into a Car accident and wanted the right compensation and you are in Washington….Getting help from a Car accident lawyer in Lacey would be a better solution for you.
In addition to that, The first condition is compensation for a physical injury or physical sickness. This type of compensation is often tax-free, but there are scenarios when tax is applicable to these compensations.
Let’s say William got injured in a car accident by Rob. Now Rob, as negligent, is responsible for paying all the medical bills. For example, the medical bills cost $50,000, and the settlement of a specified amount is made between both parties. Now William does not need to report a tax return on the amount as the compensation is tax-free.
However, if Rob has already deducted the amount for medical expenses in the previous tax return, then the compensation will be taxable.
- Compensation for Mental Traumas With Physical Injury
The next is the compensation for mental traumas and shocks due to other reasons, like a dog bite, slips, and falls, product liability, premises liability, and much more.
In these types of cases, the settlements are tax-free. It means neither a federal government nor a state government can file a tax on your settlement amount. In this case, the victim will have a personal injury which means medical expenses. And the compensation for medical expenses is non-taxable.
However, the victim will also suffer from mental distress and trauma, and the compensation for the mental distress is also non-taxable.
- Compensation for Attorney’s Fees
In some cases, the attorney’s fees also come as a monetary award in settlements. In such cases, the amount for the fees of the personal injury lawyers is also non-taxable.
Taxable Personal Injury Compensations
Now here comes the compensation that is taxable. You have to file an income tax return of the following settlement conditions.
- Emotional Trauma
The first condition is the emotional trauma a person gets by any means. But in this case, the trauma should not be linked to a physical injury. If the trauma is due to a physical injury, then the compensation would be tax-free. However, this case is different.
Let’s say William’s wife spread a rumour against William about domestic violence. And this ruined all the image of William. And due to this mental trauma, William’s business got ruined. Now William can file a lawsuit against his wife. And she has to pay a compensation amount to William for all the mental distress.
Let’s say they made a settlement of $20,000 as compensation outside the court. Now, this amount will be taxable as it is not related to any physical injury.
- Discrimination
The second condition is discrimination. Let’s say William faces discrimination in his workplace by his colleagues. As a result, William finds it hard to work properly for his company. He has the legal right to file a lawsuit against his colleagues.
If they made the settlements outside the court. Let’s say they made a settlement for $10,000 as a compensation amount. Now this $10,000 is taxable as this is not related to any physical injury.
- Exemplary Damages
The next case is exemplary damages. These are the settlement amount made as to the punishment for negligence. This amount is also taxable under the law whether they are related to physical injury or not.
For example, William gets physical injuries due to a car accident. A settlement is made with the opposite party to compensate for the losses. Apart from medical bills, sometimes they also have to pay some monetary awards to the victim. For example, William got the monetary amount of $5000.
Now, this type of compensation is taxable. You have to file an income tax return on $5000.
- Lost Income
Another case is compensation for lost wages. If the person got any personal injury whether it is just a physical sickness due to defamation or any other reason. The compensation amount for the lost income or wages will be given to the victim. This type of settlement also comes under taxable compensation.
Take Away
Personal injury cases are of two types, i.e., physical injury and physical sickness. Both cases have different scenarios and settlements. To avoid any unknown income tax returns. You must hire a professional personal injury case lawyer. He will study your case and will guide you in the best possible way.
A settlement in a legal case is compensation for the losses of the victim held outside the court. In the best cases, your personal injury lawyer will negotiate a fair settlement for you and resolve your cases before proceeding to trial.
The settlement is done in a way that is beneficial for both the victim and the negligent party. But if the negligent party opposed having settlements, then the case gets into the trial phase. And if you happen to win the case, you will get a decent compensation amount.
But, do you have to pay taxes for the compensation you got?
The answer depends on the type of personal injury case you are having. Some personal injury settlements are non-taxable, whereas others are taxable. However, there are some cases in which the settlement amount is partially taxable.
