When you have suffered a personal injury, it can be a stressful time to navigate. Not only are you recovering from your injuries, but you are also working with a personal injury lawyer in Knoxville to recover damages. There is the stress of knowing that if the insurance provider refuses to pay, you could be left shouldering a hefty medical bill while you battle it in court. However, even after your personal injury lawyer in Knoxville has successfully secured a settlement, there could still be some bumps in the road ahead. One of those is whether or not your personal injury settlement is taxable! There is no simple answer; it is going to depend on many factors, so let’s dig a little deeper.
What is a Personal Injury Settlement?
First, let’s start by defining what a personal injury settlement involves. Following your injury, you will work with a personal injury lawyer in Knoxville to file a lawsuit to recover compensation for your injuries. That encompasses more than just physical injuries. You may also be awarded damages for property, lost wages, medical expenses, and pain and suffering, among other things. The settlement will be the amount of money awarded to you as compensation following your injury. Personal injury lawsuits can be raised in a wide variety of circumstances, but some of the most common types of personal injury include the following:
- Workplace Injuries
- Slip & Fall Injuries
- Dog Bites
- Traffic Accidents
- Product Liability for Defective Products
- Medical Malpractice
Are Personal Injury Settlements Taxable?
When it comes to answering whether or not personal injury settlements are taxable, there is no yes or no answer. Some are taxable, and some are not! Which side yours falls under will depend on the types of damages awarded and any tax deductions that you might have claimed regarding the settlement. The insurance company will submit a 1099 tax form to the IRS reporting the amount awarded as part of your personal injury settlement. Let’s take a look at a few of the factors that could affect your tax liability for your settlement.
Previously Deducted Medical Expenses
Any personal injury lawyer in Knoxville will tell you that a personal injury lawsuit can take quite some time to reach a settlement. There is a good chance that you may need to pay some of your medical expenses out of pocket while you are waiting for your settlement. When this happens, you may have claimed those medical expenses on a previous year’s taxes. That means those previous write-offs might need to be considered income once the settlement is reached during a subsequent tax year.
Worker’s Compensation Settlements
In the majority of cases, settlements from a worker’s compensation claim are not going to be taxable. However, it is worth noting that if you return to work in a different capacity after your injury, your wage will be considered taxable. If the worker’s compensation claim includes a survivor settlement, it will usually be considered tax-free.
Damages For Pain & Suffering
This is where things can start to get a little trickier! Pain and suffering are not something that is easily quantifiable. As a general rule of thumb, a pain and suffering award should not be taxable if the injury has resulted in emotional distress. However, if it is not clear that there has been emotional distress, it can be taxable. In many cases, this results in only partial settlements being taxable. For example, in a case involving damage to your reputation, the injury is not physical but may still be taxable. However, if you require treatment for emotional distress triggered by that damage to your reputation, that part of the award will be tax-free. This is why it is important to work with an experienced personal injury lawyer in Knoxville who can make sure that the settlement is clearly itemized.
If your personal injury lawyer in Knoxville has billed for fees during the course of your personal injury claim and you have paid them out of pocket, those payments are going to be tax-deductible. However, if the fees are included in the final settlement, any fees already claimed as expenses will be taxed as income.
Loss of Income
If your lost wages are recovered as part of your personal injury settlement, these are still considered wages and will be taxable. The amount of your settlement award that covers lost wages will need to be reported as income when doing your taxes for the year.
Due to the complex nature of figuring out whether or not your settlement is taxable, it is advisable to consult an accountant or tax professional who can help determine the appropriate deductibles. Your personal injury lawyer in Knoxville may be able to make a recommendation.
Butler, Vines and Babb is a leading law firm in Knoxville, TN, with extensive litigation experience in Medical Malpractice Law, Birth Injury Law, Trucking Accident Law, Personal Injury Law, and Business Law. Contact us today at www.bvblaw.com or call 865-637-3531.
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