Edit this para: After a trauma, such as a car collision or personal injury, it is wise for you to hire an attorney to represent your case. Throughout the chaotic moments, surrounding the circumstances you are in, it might cross your mind whether you will receive a fair settlement. You might also wonder are you required to pay taxes on it when you file taxes online. In a majority of cases, an individual’s personal injury restitution is not taxable, but this is not a fixed rule for every situation.
What Is Taxable
One type of claim the government will definitely tax and that is punitive damages.
You might wonder what punitive damages are. It is when you sustain a personal injury because of someone else’s careless behavior. To compensate for time lost from work, along with medical fees and for aches and pains, you should contact a lawyer. The attorney will make sure the guilty party pays a penalty for their role in causing you unnecessary suffering.
A jury will make the decision on how much of the claim is compensatory versus punitive damages. In the state of Texas, there is a limit on how much a person can ask for. The amount cannot surpass two times the amount of a person’s economic and general loss. A reputable attorney will make sure a judge decides the outcome of the case.
Previously, emotional or mental distress was exempt from taxation, but with the new Trump tax reform, this might have changed. Make sure you get legal advice for this issue because it has caused confusion for some people.
What Is Exempt
On a positive note, a majority of personal lawsuit dispositions are tax exempt! This means the compensation you and your lawyer established with the insurance company is free from the grasp of the IRS. The only expense you will have to pay is for your lawyer, of course. In addition, if you have judgments against you, for instance, child support debt or if you have taken out a loan that you need to pay off, the money from the settlement would take care of these issues.
The payment would go towards your medical cost, if applicable, as well as lost income and overall damages that you have suffered.
