Should You Pay Income Taxes On Personal Injury Settlements?

Gaining a substantial cash settlement as a result of an injury lawsuit may seem like a windfall. Yet, if you are the person receiving a law suit settlement, there could possibly be tax effects on the total you receive. Certainly, you already know you have to report certain income to the Internal Revenue Service, but without an injury lawyer you may not know how much.

The simple truth is, the amount of taxes it's essential to pay after a settlement really is determined by the reason for the payout. For instance, anything received for property damage or medical expense is generally not taxable as it will be offset by the loss of your property, and your medical bills. If you have been a victim of an accident where you've had to miss work and lose wages, that amount is taxable because you would have paid taxes on any income anyways.

If the injury case included punitive damages which can be rendered to penalize the offending party for their behavior, that amount of the settlement award is taxable. Moreover, if you get a large sum of money and place it into a savings account or other interest bearing bank account, money earned as interest may be taxed by the IRS.

The greatest problems linked with receiving a personal injury settlement is the wording in the settlement contract. Most settlements can sometimes include the key phrase on the settlement deal as being a general release of liability. If this sounds like the case, the Internal Revenue Service may be the one making the decision as to what proportion of the settlement total is susceptible to taxes.

If you use an experienced personal injury attorney, they can help prevent this from occurring because they can be sure that your settlement agreement is precise about what the money is for. As an example, a specific amount should be specified to pay back any property or medical losses gone through by the injured party. It is also possible that an experienced attorney can provide settlement agreements that eliminate most, if not all, tax liability for any money obtained in a personal injury settlement.
On the other hand, you have to be prepared to provide proof to the IRS that the money received is not susceptible to taxes. If you have been injured and feel you may need help from a personal injury lawyer, call one straight away. By selecting to work with a personal injury attorney, you're helping defend yourself in the long run.