According to the US Department of Treasury, the IRS received more than 137.3 million tax returns in 2015. Was yours one of them?
Knowing what to claim when you file your taxes each year can sometimes be confusing. If you were awarded a personal injury settlement in 2016, you may be wondering if you are legally obligated to claim it. This page details what you need to know about your personal injury lawsuit settlement when filing your taxes.
Asking an accountant or tax professional when you have questions about your individual situation is always best, and can save you a great deal of time and inconvenience. The attorneys at The Flood Law Firm have decades of combined legal experience working with victims of personal injury accidents.
If you have recently been involved in a collision and have questions about your rights, we want to hear from you. You can get a free, zero obligation and 100% confidential consultation today by calling us at 860-346-2695. You have nothing to lose, and we can help answer all your questions.
Are legal settlements taxed? Simply put, no. While legal settlements are not taxed, the law is not so cut-and-dry.
The IRS affirms that if you are compensated for a personal injury sustained during an accident, that money is federal-income-tax-free. Compensation for emotional pain and suffering is also tax-free, though not on every occasion. To avoid paying taxes on this money, you must prove that your emotional or mental distress was directly related to the injury you sustained during the wreck.
If you are awarded money for medical expenses, this also is tax-free.
However, the law changes if you claim a tax deduction for expenses that are later reimbursed. It’s important to note that if you previously benefited from a deduction and later receive compensation, you are legally required to pay taxes on those monies.
There are specific examples when an injury settlement is taxable.
For example, when seeking compensation following an accident, you are not permitted to deduct attorney fees on your taxes.
If you have an injury that prevents you from working, you may sue for lost wages and any money you are awarded will be taxable income. The reason for this is the IRS considers this to be “normal income,” and the settlement will count as regular employment earnings and will therefore be taxed as such.
If you have questions about your injury settlement and how it affects your taxes, you can set aside a portion of this money as a precaution. This simple measure could save you time and inconvenience until you have a chance to speak with an attorney.
Have you been involved in an accident that left you with a personal injury? If so, The Flood Law Firm wants to hear from you. From making phone calls to collecting medical records, we have the skills and experience to handle every aspect of your case. You can spend your time focusing on what really matters, such as your healing.
For a free, no-obligation consultation, call us today at 860-346-2695. Not only can we help determine your best options for moving forward, we can also answer any questions you have pertaining to a lawsuit or potential settlement. Let us be your advocates!