Even though accidents are inevitable, nobody wishes to be afflicted by one. However, if you happen to fall victim to an accident caused by another party, you may be entitled to compensation.

The recompense you may receive includes income loss, medical expenses, physical injury, as well as compensation for the emotional pain and suffering you got from the accident. Contact an Orlando personal injury attorney to assist you in filing a claim with the guilty party’s insurance company. Prior to settling a claim, seek guidance from your attorney on which proceeds are taxable as income.

Am I Liable To Pay Taxes From My Personal Injury Settlement?

Though personal injury settlements are free from state and federal taxes, there are some cases when this rule is void.

Personal injury settlements encompass the compensation of different types of damages. Each damage is subject to different income tax rules. Even though your personal injury settlement lawyer will always try to draft a settlement that reduces your tax liability, some factors are beyond their reach.

Loss of Income

Proceeds from loss of income are subject to taxation if the mental or emotional injury were the sole cause of the loss. However, in cases where the loss came from physical harm, you may not be liable to pay any taxes on your proceeds. Nonetheless, to be on the safe side, seek guidance from a tax professional and consult your attorney before settling a claim.

Medical Bills & Personal Care Cost

All compensations received from personnel and medical care are exempted from taxation unless you include your medical bills on your income tax return as a deduction. In that case, you may be liable to pay the portion that covers medical costs as a tax return.

Property Damages

This personal injury settlement is not taxable. However, if you receive higher compensation than the property’s adjusted value, the additional proceeds may be taxed.

Pain & Suffering Damages

This compensation covers the physical, emotional, and mental damages incurred from an accident. The proceeds for physical pain and suffering usually don’t get taxed. The same goes for emotional trauma and mental anguish, provided they are part and parcel of the physical injuries sustained in the accident. Suppose a claim does not include physical injuries, It is subject to taxes for compensation of emotional and mental damages.

Punitive Damages & Interest

Punitive damages are awarded to the injured parties to punish the villain for gross negligence and unprovoked wrongdoing. Generally, these damages are not compensatory; hence they are subject to taxation. The interest that accrues from punitive injury settlement isn’t exempted from tax either.

Contact an Orlando Personal Injury Attorney For More Information

Personal injury settlements are complex. These settlements may involve different types of damages. The manner in which an injury settlement is drafted determines whether the compensation will be subjected to taxation or not. Ideally, you should consult a Orlando personal injury attorney before accepting any settlement offer. If you need any help on how to claim your compensation, please don’t hesitate to contact us.

Please be advised that each individual settlement/situation is unique, and you should always consult with an attorney for advice on your specific circumstances in this regard.