Usually, personal injury settlements are not taxed. The money that you get from a personal injury settlement is not considered to be waged, it is “compensatory”, or money you get to be compensated for a loss. The IRS has made it clear what is taxable in a personal injury settlement and what is not taxable. You cannot be taxed for money that you received for your physical injuries, emotional distress caused by your injuries, and lost wages that resulted from your injuries.
So, the money that you receive for your medical bills and non-economic damages are not taxed. However, there are some limitations and exclusions that you need to be aware of. If you have already received any type of tax benefit in the past that stems from your personal injury case, you aren’t allowed to “double dip”.
Also, if you earn any interest on the money that you receive from your personal injury case, you will have to pay taxes on that interest. Punitive damages may be considered differently by the IRS, because punitive damages are not considered to be compensatory, they are intended to punish the other party for their wrongdoing. Therefore, they may be considered taxable income by the IRS.
If you receive a settlement that involves lost profits from your business, there may be self-employment tax ramifications. You are also responsible for any liens that may have been placed against you, so it is important to talk to your personal injury attorney to make sure you don’t end up owing money that you were not aware of.
Can I Reject A Settlement Offer?
You may always reject an offer from an insurance company. You should discuss the offer with your attorney, to see if you have a realistic goal as to what your settlement amount should be. Everyone wants a settlement that results in millions of dollars, but those kinds of settlements are not common. If you feel that the insurance company has low balled you or has not offered you a fair amount of compensation, you should certainly reject the offer.
The insurance company may come back with a better offer, but you cannot count on that. They may stick to their initial offer, and your case may have to proceed to trial. Just because the insurance company makes an initial offer does not mean that your attorney cannot continue to negotiate on your behalf. Talk to your attorney about what you believe is a reasonable settlement amount, and you and your attorney can discuss numbers that are viable.
How Is My Lawyer Paid?
Usually, lawyers will represent a personal injury claim on a contingency basis, and that means that you do not have to pay the attorney anything up front. The attorney will only be paid if there is a settlement that is agreed upon. Then the lawyer will be entitled to a percentage of the settlement. This percentage will be discussed and agreed upon when you sign the fee agreement so that there are not any surprises. Usually the percentage is 33% of the settlement amount, but different percentages can be negotiated with your attorney. You will discuss all the fees to your attorney when you have your consultation.
Are There Potential Factors That Might Limit Or Minimize A Settlement In My Injury Case?
Depending on your state, your percentage of fault, if any, may reduce the amount of compensation you receive in a settlement. There are certain preexisting conditions that the insurance company may try to use against you, make sure you let your attorney know about all your previous medical conditions.
You will need to have a way to prove lost income, if you are self-employed and you don’t keep good records, this could work against you. Your attorney is in the best position to figure out the pros and cons of your case, so it is important to give your attorney as much information as you can. An experienced personal injury attorney will be able to help you with all your questions and negotiate the best possible result in your claim.
What Other Things Can I Do To Assist My Attorney In Getting The Best Possible Settlement Outcome In My Auto Injury Case?
Keep good records! That is probably the most important thing to help your attorney with your case. Keep a record of dates and times. Make sure you document all phone calls that you have had regarding your case and keep all your receipts for any property damage or medical procedures. If you got estimates for property damage repairs, make sure to give those to your attorney as well.
Keep all your medical appointments and go to the appointments that your attorney sets up for you. Tell your attorney the truth about your situation and any pre-existing conditions. Make sure you give your attorney all relevant documents like pay stubs, and proof of the time you were out of work.
The more information your attorney has, the better it will be for them to negotiate on your behalf. Keep in touch with your attorney if there are any circumstances that change, and make sure to let your attorney know if anyone from the insurance company tries to contact you directly.
For more information on Paying Taxes On A PI Settlement, a free consultation is your next best step.
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