Securing a settlement with the help of a personal injury attorney is a significant moment in your recovery. Settlements can help pay medical bills, compensate for lost wages and provide the financial support needed to move forward after an injury. However, as you prepare to receive your compensation, it’s important to understand how taxes might affect the total amount available to you. Let’s examine whether you could be liable for paying taxes on your award.
Are Personal Injury Settlements Taxable?
When you receive your personal injury settlement, you may be overwhelmed with joy and relief. With this much-needed financial support, you can start your new life, heal yourself as much as possible, and move forward. However, you also need to think about the tax considerations when receiving a personal injury settlement. Do you have to pay taxes on your entire settlement? Will parts of your settlement be tax-exempt? These are the questions Attorney Joe Lucé can answer for you. If you have specific questions regarding your settlement or taxes, you should confide with your attorney or a certified public accountant. None of what is written in this blog should constitute as financial or legal advice.
What Parts of a Settlement Are Tax-Free
When you receive a personal injury settlement, you will often get the settlement divided into separate parts that dictate what each part is for. For example, any compensation you receive for a loss is not taxed. This includes medical bills, out-of-pocket co-pays, medicines, lost wages, property damages, and other losses. Please note you may have to pay taxes on any money you have received to cover future losses, like future wages. Be sure to ask your accountant, as this area of law gets very complex. Your accountant should have an understanding of personal injury settlements and taxation to properly guide you.
What Parts of a Settlement You Must Pay Taxes On
If you have received money to compensate you for emotional distress or any punitive damages, then you will have to pay taxes on all or some of it. The amount you will have to pay for emotional damages will depend on whether you sought medical treatment for your emotional damages or whether they were caused by physical injuries. This is a very fact-dependent area of law that should be thoroughly discussed with your attorney.
What to Know When Filing Taxes After Your Settlement
While it’s essential to work with an accountant who understands personal injury settlements, there are several steps you can personally take to prepare for tax filing. Having organized records and understanding basic requirements will help you meet all tax obligations. Make sure to keep the following documents.
- Settlement documents, agreements and bank statements
- Medical bills and treatment records
- Proof of property damage repairs
- Documentation of lost wages
- Records of attorney fees and legal costs
- Tax forms from your attorney or insurance company
Maintaining all records will help ensure you meet the tax requirements that could arise. With the guidance of your accountant and personal injury and wrongful death lawyer, you can secure a fair settlement that supports a full recovery.
Speak With A McKinney Personal Injury Attorney About Your Settlement
Lucé Law, PC can help you secure a fair settlement for an accident or injury that wasn’t your fault. Our dedicated personal injury attorneys can advise and represent you after a car accident, slip and fall injury, product liability issue and many other cases. Call (972) 632-1300 or request a free legal consultation today.
