It’s Tax Day! Okay, so maybe you’re not excited about Tax Day, but it’s a necessary evil. If you’ve found yourself in the midst of a lawsuit this past year, you may be wondering if your settlement is taxable or not. We will walk you through what is and isn’t taxable from your settlement.
Medical Expenses: Settlement Not Taxable
If you have received compensation for medical expenses, they are not taxable. At least, as long as you haven’t already deducted the expenses. If you deducted the expenses and then were reimbursed in the form of a settlement, you have to pay taxes on this item.
Lost Wages: Settlement is Taxable
Lost wages are taxable because they intend to replace the income you would have made. That being said, income is subject to tax, so it only makes sense that this settlement is taxable as well. If lost wages is only a portion of your entire settlement, you are required to pay only for the portion designated for lost wages. This is why it is important to make sure that your settlement is detailed as to which amount coincides with which claim.
Property Damage: Settlement Not Taxable
Compensation received for property damage, including damage to your vehicle, is not taxable. Whether this money is meant to repair the property or meant to cover the actual cost of the property, it doesn’t matter. It is still not subject to tax.
Personal Injury: Settlement Not Taxable (Mostly)
If the injury is referring to a physical injury, it is not taxable. If the injury is related to an emotional injury, then the settlement is taxable– the exception being if you were able to prove in court that your emotional injury lead to physical consequences. We’ve covered this issue in further detail in a previous post.
Experienced Austin Attorney for Future Litigation
Knowing which claims are taxable is important when settling a case. Let’s say you are wishing to seek compensation for lost wages, medical expenses, and property damage after a car accident. A great attorney will know to make sure the amount awarded for compensation is clearly defined, which will help you during tax season. If you are seeking representation, contact the Colley & Colley law firm in Austin, Texas online or call us toll-free at 1-866-760-0358 for a free consultation.