Can You Get Taxed On Personal Injury Settlements?
When it comes to personal injury claims and settlements, the question of taxation often looms large. Many people ask, “Are personal injury settlements taxable?” Those who receive these settlements are often unsure if such funds are considered taxable income under local, state, or even under federal law via the Internal Revenue Service (IRS). In Virginia, as with every U.S. state, specific rules and regulations govern the taxation of personal injury settlements.
What Damages In A Personal Injury Settlement Are Tax Exempt?
In general, any damages awarded in a personal injury case settlement that is intended to compensate for physical injuries or sickness are considered tax-exempt. This includes compensation for medical expenses, pain and suffering, lost wages, and other related costs. However, there are some exceptions to this rule.
Compensatory Damages for Physical Injury
In the state of Virginia, compensatory damages for physical injury typically are exempt from taxes. These damages are intended to compensate the injured party for the physical injuries they have suffered as a result of the incident, covering medical expenses and other out-of-pocket costs associated with the injury.
Emotional Distress Arising from Physical Injury
In addition to physical injuries, emotional distress arising from these injuries can also be considered for compensation. This can include mental anguish, loss of enjoyment of life, anxiety, and depression. Similar to physical injury compensation, these damages are typically tax-exempt in Virginia if they are directly linked to a physical injury.
Wrongful Death Settlements
A wrongful death lawsuit settlement is another type of personal injury settlement that is generally exempt from taxation in Virginia. If a person dies as a result of another party’s negligence or intentional action, the deceased’s family or estate may receive a settlement. The compensation for wrongful death claims is usually for emotional suffering, lost companionship, lost wages, and funeral expenses. These funds are typically not considered taxable income.
What Damages In A Personal Injury Settlement Are Not Tax Exempt?
Although many elements of personal injury settlements are tax-exempt, there are also certain damage awards that do require you to pay taxes when receiving them like punitive damages, certain emotional distress claims, and some lost wages.
Punitive Damages
Punitive damages are awarded to punish the defendant for their negligence or intentional action rather than to compensate the victim. In Virginia, punitive damages are considered taxable income. This means that if your personal injury settlement includes an award for punitive damages, this portion of the settlement is generally subject to income tax.
Emotional Distress without Physical Injury
There are situations where a plaintiff might claim damages for emotional distress that isn’t necessarily connected to a physical injury. In such cases, Virginia law typically considers these damages as taxable income. This can include instances such as defamation, invasion of privacy, or harassment, where the distress suffered is mainly emotional rather than physical. It’s important to consult with a knowledgeable tax professional to fully understand the implications of such damages on your taxable income. Remember, every situation is unique and may carry different tax liabilities.
Interest on the Settlement
Another taxable element of a personal injury settlement is any interest accrued on the award from the time the claim was filed until the settlement was received. Although it is common for legal cases to take months or even years to resolve, the interest earned during this time is deemed taxable income in Virginia.
It is always recommended to consult with a Virginia personal injury lawyer about the implications of a personal injury settlement. Tax laws can be complex and are subject to change, and individual circumstances can significantly impact how settlement funds are taxed.
Compensation Paid For Confidentiality or Non-Disparagement
Many settlements include an agreement to keep the terms of the settlement confidential, or an agreement not to disparage the adverse party. These types of payments are usually taxable in Virginia. It is important to discuss these types of clauses with a lawyer if they are included in your settlement to ensure that you do not have excess tax liability by agreeing to these terms.
Hire a Personal Injury Lawyer For Your Personal Injury Case
Navigating the intricate paths of personal injury law can be daunting, especially when you’re burdened with injuries or emotional distress. This is where we can make a difference. Our team of experienced personal injury lawyers is committed to standing up for your rights and fighting for the compensation you deserve.
We have extensive knowledge of Virginia’s personal injury laws, including the complex aspects of taxation on personal injury settlement. We approach personal injury cases with a deep understanding of your unique circumstances to ensure your claim is handled in the most advantageous manner possible.
We advocate on your behalf to ensure you receive full compensation for medical expenses, pain and suffering, lost wages, and other related costs while minimizing your tax liabilities where possible.
Trust us to handle your personal injury case, and let us fight for the justice you deserve. Contact our team for a free consultation today.
