Taxes can take what you expect to receive and reduce the amount. However, certain factors can change when settlements are taxed. Below, we will explain what you need to know about tax implications and your settlement to safeguard your rights.
When Do Taxes Impact Compensation?
According to the United States Code 104(A)(2), your compensation for physical injuries or sickness is not a listed item under gross income. The amount you recover is not part of your income. In most cases, your settlement is not a taxable income as long as your monetary losses and damages occur because of an injury.
However, taxes can apply in two different situations:
- You may be taxed on any interest on your settlement. It is interest income and thus falls under taxable compensation under the law.
- If you receive punitive damages, they can be taxable. They should be listed as other income, even if you recover the punitive damages in an injury case.
Taxes can be complicated. When you suffer an injury because of someone else’s negligence, you need compensation to cover your losses. Losing any of that money to taxes can significantly impact your well-being. Having a lawyer on your side helps.
For a free legal consultation, call 863-250-5050
At Dismuke Law, PLLC, we look to maximize the compensation available to you. We will work with you to help you understand your rights every step of the way. Let our Lakeland car accident attorneys give you a voice against negligence and pursue compensation when you need it most.