Income earned is almost always subject to taxes, along with large gifts and prize winnings. However, personal injury monetary awards may not always be taxed, depending on the circumstances. Read on to find out more.
Why You Need to Know
Personal injury compensation awards are not set in stone. There are no standards in place because every accident is different. The needs of the victim can vary too, with some needing far more financial relief than others. For example, car accident victims who are permanently disabled may be entitled to settlements totaling a million or more dollars. Another variable concerns whether the victim was compensated using an agreement out of court or the jury awarded the victim with a court judgment. What the victim ends up with also depends on the skills of the lawyer and how much the victims asked to be paid. The issue of taxation is important because victims expecting to lose some of the money to taxes might need to ask for a higher amount in the first place.
Consult With a Specialist
Not only should you consult with a vehicle accident lawyer about your car accident situation, but other experts should be included – especially when the amount of compensation is very high, and you will be making big financial decisions. Vehicle accident attorneys or personal injury lawyers can provide victims with some basic information about compensation, but you might need to speak to a financial expert to find out more.
General Information Regarding Taxation and Damages
In general, money awarded to car accident victims is not considered income earned, prize winnings, or a gift. That means it's usually free from taxation. A personal injury settlement or judgment, though, is not just a single payment but is made up of several parts. Those parts may include:
- Medical expense payments.
- Reimbursement for lost wages.
- Payments for lost or damaged personal property.
- Pain and suffering payments.
- Interest owed on any of the above.
- Punitive damage awards.
Of the above items, only interest and punitive damages may sometimes be considered taxable. Each situation varies, however. Punitive damages in a car accident case are rare and are usually only awarded when an example needs to be set. Collisions involving a business, for example, may be such a situation. Interest is not always awarded but may be pertinent if the case was prolonged unnecessarily by delaying tactics by the defendant.
To learn more about being paid for the actions of another driver, speak to a personal injury lawyer.