With tax season upon us, we’d like to take this opportunity to share with you just how a jury award or settlement from a personal injury suit will be looked at by the taxman.
How the Tax Code Looks at Personal Injury Awards & Settlements
Before legislation was changed in 1996, practically all personal injury settlements and jury awards were ruled to be non-taxable – meaning you didn’t have to pay taxes on what you were given or awarded.
Changes were made in 1996 to Section 104 of the U.S. tax code that placed limits on which types of injuries would receive the tax-free status: actual physical injuries or physical sickness.
In short, this means that as long as a physical injury resulted in you being compensated for lost wages, medical bills, pain & suffering, loss of consortium, emotional distress, lawyer fees, etc., your award or settlement will not be taxable.
As for the physical sickness qualifier, if, for example, you had been exposed to a virus by someone’s negligence and you became sick, the damages you’re awarded are tax-free.
Exceptions That Can Make You Pay Taxes On Your Award or Settlement
The IRS has included a couple of exceptions that will make settlements and jury awards for personal injury suits. They are:
- Interest that’s added to your settlement or award
In essence, the clock starts ticking on your suit the moment it’s filed. If you win a jury award or agree to a settlement, interest may be added to the monies for the full time your case has been running.
- Awards for emotional injury only
If your suit is based upon emotional distress but there is no physical injury, the monies you’re awarded will be taxable.
Call Barber & Associates If You’ve Been Harmed by the Negligence of Someone Else
If you’ve suffered injuries because of someone else’s negligence, it’s very important that you speak with an attorney skilled in personal injury law so that you’re properly compensated for lost wages, medical bills, etc.
Get in touch with us here at Barber & Associates. The first consultation is always free.