So, the legal battle is over, and you are expecting fair compensation for the results of your personal injury case. But, you may be concerned about receiving a lump sum payment that in most cases is substantial. Are you required to pay taxes on your personal injury settlement? According to our personal injury lawyers, in the state of Florida, you (usually) do not. However, the tax laws can be quite complicated, and there are exceptions. So, there are some things you need to know according to our personal injury attorneys.
When a judge decides that the injury caused to you was so outrageous that the person who caused it needs to be punished, then they will award punitive damages. Punitive damages are not for repayment of expenses. They are purely an award to you, meant to punish the person or company who caused you to be hurt. As such, the Internal Revenue Service considers punitive damages as income, and you are required to pay taxes on that portion of your settlement.
Invasion of privacy is considered a form of punitive damages. Any financial awards for invasion of privacy is taxed as a punitive damages award.
What About Lost Wages?
If you had not been seriously injured or hurt, you would have earned a certain amount of money in salary during the particular time in question. That salary would have been taxable income. Therefore, if you are award payment for the wages you lost, they are considered taxable income, and you will be required to pay taxes on them.
Are Mental Anguish And Emotional Distress Awards Taxed?
If the mental anguish and emotional distress you suffered were directly due to the injuries you sustained, then they are not taxable. However, if the court rules that you are entitled to payment for the mental anguish and emotional distress, but it is not a direct result of your injuries, it is considered income. As income, it is taxable.
Do Discrimination, Defamation, Wrongful Termination Get Taxed Too?
Discrimination usually falls under the heading of lost income. The victim was unable to be fairly compensated due to discrimination. The award then is considered income and taxable. If the court rules the act merits punitive damages (as a form of punishment to the employer), that too is considered income and taxable.
The same concept applies to defamation and wrongful termination. These infractions cause a loss of wages. When you are compensated for those wages, it is taxable income.
Are Harassment Awards Taxed?
Harassment is difficult to pinpoint. Sometimes the law considers it emotional distress, and sometimes they determine it is an injury. Therefore, harassment must be looked at on a case by case basis. In most cases, the Internal Revenue Service does tax this amount of the settlement.
As you can see most of your settlement is tax-free. However, the laws in the state of Florida are complicated and there probably will be some taxes due. It is best to consult with your personal injury attorney to ensure you are compliant with all legalities of your settlement.