A massive sense of relief washes over you when you reach an acceptable settlement on your personal injury claim in Florida. Especially if you have lost income, have bills you need to pay, or are suffering from emotional distress. Although you may want to celebrate the result of your case, there are still important things to consider to make sure that your rights are protected under the law.
Furthermore, if a settlement is still being drafted for your injury claim, then there are specific steps you can take to minimize your tax liability and protect yourself from any surprise tax bills.
If you were a victim of a personal injury case in Florida, then an experienced attorney at The Law Place will help you to fight for the compensation you deserve. We will provide you with legal advice to ensure that your tax liability is minimized and help you to prepare for any taxes that you should expect to receive. Contact us today for a free no-obligation consultation. Our phone lines are manned 24/7, give us a call at (888) 224-6114.
Do I Pay Taxes on My Personal Injury Settlement?
One of the essential considerations in your personal injury settlement is taxes. You may be asking the question, is my settlement taxable in Florida? The answer is, maybe. It depends on what the settlement is for. This can be a little overwhelming, so here we have broken it down for you.
Here are the tax liabilities for a personal injury settlement in Florida, broken down into categories.
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Medical expenses are not taxed. Any compensation you receive because of physical injuries or sickness is not taxable. That includes all medical bills, whether they are for emergency care, physical therapy, follow up visits, or nursing care. You should not pay any taxes on payments you receive because of physical injury.
Pain and Suffering
Pain and suffering damages are compensation for physical and mental suffering caused by your injuries. This includes any emotional trauma, restrictions on your usual activity, and physical discomfort. Unlike medical bills, they are not easily quantifiable. Pain and suffering damages are not usually taxable.
Although pain and suffering damages are not usually taxable, sometimes you are required to pay taxes on the compensation you received solely for emotional distress. However, if your injuries are the direct cause of your emotional distress, then you shouldn’t pay taxes on it.
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Harassment may include pain and suffering, which is not taxable. However, it depends on the circumstances, and a lot of the time, the IRS will tax any damages received because of harassment.
Any compensation you receive for lost wages is taxable. Compensation for lost wages is designed to cover any money you have lost from missing work, so it is taxable in the same way your usual income would be.
If you receive interest on your personal injury settlement, then you could have to pay taxes on the interest portion of your payment. This is because interest payments go beyond compensation for your injuries and losses.
A wrongful termination is a form of lost wages, so it is considered a taxable income.
Punitive Damages are designed to punish and deter the defendant of the case, rather than compensate the victim. Because these go beyond compensating you for losses, they are a form of taxable income.
Invasion of Privacy
Invasion of privacy is a form of Punitive Damages and is not directly related to your injury costs; therefore, it will usually be taxed.
Discrimination generally results in lost wages, which is a form of compensatory income and is therefore taxable.
Because Defamation damages are not directly related to an injury, but instead makes up for lost income, it is taxable.
Who Makes the Rules About Taxes for Personal Injury Settlements?
The IRS makes the rules regarding taxing personal injury settlements. The law states that any payment you revive because of sickness or personal injury is exempt from taxable income.
If the IRS questions your tax liabilities, then they will consider the totality of your circumstances to judge what the settlement is for. They usually start by assessing the language of your settlement judgment or jury verdict. This will let them know whether your compensation is for physical injuries.
However, the judgment alone may not be the only thing they consider. The IRS can go beyond the settlement judgment and look more in-depth into the facts of the case. If the language of your settlement judgment isn’t consistent with your actual losses and injuries, then they could ask questions. It is up to you to show that the settlement money isn’t taxable.
What Can I Do to Protect Myself?
As an injury settlement is prepared, there are certain things you can do to minimize your potential tax liability. Although the IRS could take several factors into account, it is a good idea to try and get the language of your settlement right. It is insufficient to have a judgment that only states how much you will receive. Instead, a settlement needs to state precisely what those funds are compensating you for.
When your settlement is drafted, it is important to consider the facts of your case, and where your losses lie. For example, you may be able to minimize punitive damages, and increase pain and suffering damages, to reduce your tax liability. An experienced personal injury lawyer in Sarasota FL will help you to ensure that your settlement is drafted in a way that works to your advantage and is sufficiently supported by evidence from your case.
It is also vital to make a plan to pay the taxes that you could owe on your injury settlement. You have the option of sending the estimated amount to the IRS straight away, or you could put the money aside into a separate account. Whatever you decide, it is crucial to have a plan for your tax obligation, so you do not end up with an unexpected bill.
The Law Place
If you are in the process of a personal injury case, then you should contact an experienced personal injury lawyer. At The Law Place, we have over 70 years of combined experience. Unlike other law firms, we work as a team so that you can benefit from our combined knowledge and experience. We will help to ensure that your settlement sufficiently covers your lost income, pain, and suffering damages, and anything else that you are entitled to.
We work on a contingency-fee-basis; however, by working with a personal injury lawyer, you have a better chance of seeking the maximum compensation available to you. We will also help you to draft your settlement to minimize your tax liability as much as possible. Our phone lines are always open, so give us a call on (888) 224-6114.