How To Handle Taxes With A Personal Injury Settlement

Personal injury cases are complex processes that take a long time to resolve. When you sustain extensive injuries, you expect to receive compensation for medical bills, lost earnings, and other losses directly caused by the accident. After reaching a verdict, the judge will award you the compensation required to cover your expenses. But how much of this money will you have to pay on taxes? confirms that personal injury settlements are not taxable as long as they compensate you for the losses caused by another’s negligence. There are some exceptions where part of a settlement might be taxable, especially in cases in which punitive damages are awarded.

Although your accountant should be able to guide you through this process, they might redirect you to your lawyer for a more definitive answer. A good lawyer will know how to help you understand your circumstances and how much of your settlement is taxable. If you want to know more about how to handle taxes with a personal injury settlement, the following points might prove helpful.

Most Common Personal Injury Cases In Pennsylvania

Although there are many different types of personal injury cases, some tend to be very common. Car accidents, truck accidents, and other traffic-related accidents occur frequently all across the country. Accidents that involve vehicles can cause severe injuries and even death. 

Other common personal injury lawsuits are slip and fall accidents, drowning accidents, dog bites, and injuries caused by defective consumer products. There are also wrongful death claims, worker’s compensation cases, and medical malpractice. 

Personal Injuries: Taxable Or Not Taxable?

Your personal injury settlement can be partly taxable depending on the damages you suffered and your prevailing circumstances. For example, when you receive compensation for your medical bills, the government will consider whether you took an itemized deduction in the previous years. 

If you took a deduction in the past for medical expenses, you would have to include your settlement amount in your taxable income. Otherwise, most personal injury settlements are not taxable, and you can receive compensation for all your losses.

Medical Expenses and Recovery

A car accident can cause significant damage. You have the right to obtain total compensation for property losses, health issues, and pain and suffering. Medical bills can reach substantial amounts, especially if you have sustained severe injuries. Some possible expenses are emergency care, surgery, medical treatments, doctor appointments, hospital stays, physical therapy, and rehabilitation.

These are just a few examples from a long list of potential expenses. Fortunately, you can receive compensation from the at-fault party. This type of compensation is taxable only if you previously took an itemized deduction. To better understand your situation, you should seek legal advice from a qualified attorney. They will be able to guide you through this complex process and give you valuable advice.

Emotional Distress

Suppose you are going through a difficult recovery, and the accident has left you with significant trauma. In that case, you might experience various emotional distress symptoms. It is not uncommon for individuals involved in a car accident to suffer personality changes, mood swings, and anxiety, along with panic attacks, depression, paranoia, and other forms of emotional distress. You deserve compensation for your pain and suffering, which is not taxable income.

Property Damages

When it comes to damaged property, it is essential to know its value before the moment of the accident. If you were in a car accident, your vehicle probably sustained significant damage, depending on the severity of the impact. In such cases, the compensation might be taxable if the amount of compensation is higher than your property’s value. As long as you have a lawyer by your side, they can ensure you receive compensation for your property losses. 

Lost Wages

When your recovery keeps you from attending work, you lose earnings essential for your well-being. If you included compensation for lost wages in your personal injury lawsuit, you would have to pay taxes on this particular amount. Compensation for personal injury means covering the expenses you lost during the recovery period. Any compensation for lost wages will include taxes on income, social security, and withholding taxes.

What Are Punitive Damages?

Punitive damages are uncommon in Pennsylvania. While in most personal injury cases, you will receive compensation for your losses, punitive damages are awarded only in particular situations as a punishment for dangerous behavior. This category fits drunk drivers, untrustworthy manufacturers, or wrongful death cases. Punitive damages are considered taxable income. If your case involves punitive damages, you should hire a lawyer to handle your case.