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Are Taxes Removed From A Personal Injury Settlement?

Most of the funds received by the victim that has received settlement money, after pursuing a personal injury lawsuit, do not get taxed. Why is that the case? The nature of the process that allows a victim to seek compensation for damages explains the tax-free status of those compensation funds.

A personal injury lawsuit seeks to get the victim back to where he or she was before becoming the victim of an accidental incident. The money received as compensation for medical expenses cannot be taxed. The victim became injured as a result of becoming the target of a careless and neglectful act. Similarly, money offered as reimbursement for the costs of nursing care, or the costs of housekeeping expenses cannot be taxed.

Before the accidental incident, the victim did not need nursing care, and did not need to pay anyone for performing housekeeping chores. The victim did not spend money for such services. Once the victim got injured, those added expenses were a drain on the victim’s bank account.

There are times when the government does tax certain money that compensates for damages.

The money that reimburses a victim for lost wages can be taxed. The government always gets a designated portion of a worker’s paycheck. The government does not alter that practice, just because the money in the pay check’s replacement came from a settlement fund. The source of that same money does not alter the fact that a part of it belongs to the government.

If the victim receives money in the form of punitive damages, that money can be taxed. The punitive damages act as a punishment. They are meant to keep the defendant from repeating the act that injured the plaintiff. The money received in the form of punitive damages does not represent funds that the victim used to get back to the point where he or she was earlier.

Victims are advised to speak with a lawyer, after receiving a settlement payment.

Personal injury lawyers in Moorpark understand what money that was part of a settlement check can be taxed. That same money needs to be declared on a tax statement. Lawyers do not want their clients to run into trouble with the government, by neglecting to account for funds that the government has the right to tax.

For instance, there are times when money paid for emotional damages can be taxed. An attorney has an understanding of the circumstance’s that would allow for the taxing of that money. The government does not look kindly on those that fail to pay their taxes. It does not alter its attitude when a tax-cheat has received money as compensation for a personal injury, without knowing every aspect of personal injury law.

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