It is important to note that when you have a personal injury settlement, there is money awarded to the person that brings the case against another. This money is subject to taxes, depending on how it is received, how much is given and what it is given for. Certain reasons are tax exempt, allowing you to keep the amounts out of your taxes. However, certain instances require the IRS to be paid in full for a chunk of the money that was awarded to the plaintiff in the case.
Money for Medical Expenses
Amounts paid to you for medical expenses is tax free. However, you have to keep in mind that if you took a deduction before to cover medical expenses, then you’ll have to pay this amount back to the IRS due to the fact that you received the amount owed. If you took no medical reimbursement deductions on your taxes, then this is not an issue and you do not have to put the amount through the tax system.
Cash Awarded for Physical Injuries
Cash that is awarded for physical injuries is tax free. According to the IRS, any income that is given due to physical injuries that were sustained is free from federal taxes. This includes money for pain and suffering awarded through a court or settlement. Any money for emotional distress also counts towards this tax-free status since it was awarded due to having physical injuries from the case.
Reimbursement for Lost Wages
Though you might think that reimbursement for lost wages is something that you have to claim taxes on, it is actually tax free. Even if you filed taxes on these income guidelines previously, the amount that you get from the settlement or the court system is actually money that you do not have to report on the taxes that you get them.
It is important to know the tax rules and tips to ensure that you get the most from your settlement. Speaking with a tax professional can provide you with more information regarding your settlement amounts received through your personal injury case.
If you have yet to follow through with the case that you think you have, speak with a personal injury attorney in Melbourne, Florida. They can provide you with more information regarding the case that you may have. They generally provide free consultations and can help you get the maximum amount.