stevestojan Posted October 6, 2004 Posted October 6, 2004 Does anyone know if you have to pay taxes on money won in an injury settlement? Is it tax free up to a point? Is it taxed like any regular income? Thanks !
GG Posted October 6, 2004 Posted October 6, 2004 Depends on the verdict. Compensatory damages are taxable. Punitive are not. Who won the judgement against you? Hope you had insurance.
Boatdrinks Posted October 6, 2004 Posted October 6, 2004 I'm not a lawyer, nor do I play one on TV. But if I had to conjure a guess, I can't imagine the government not wanting a chunk of that cash. I'd say it has to be taxed as income. Kind of like winning the lottery. B)
checkmate Posted October 6, 2004 Posted October 6, 2004 As a lawyer and I can tell you if the settlement is "pure personal injury", that is reimbursement for medical expenses incurred and pain and suffering it is not taxable. Any aspect of the settlement or verdict that is for lost wages would be taxable. Some of the distinctions are complicated. However, if you had a lawyer representing you, he or she should have the settlement crafted in a way that all payments are pure personal injury. As an aside, the insurance company has to follow the rules too. They can only send you a 1099 if the settlement is taxable. You can PM me if you need more info.
Ramius Posted October 6, 2004 Posted October 6, 2004 Legal question? Steve, stay away from the 16 yr olds and you wont have these issues...hehehe j/k
Magic54 Posted October 6, 2004 Posted October 6, 2004 Depends on the verdict. Compensatory damages are taxable. Punitive are not. Who won the judgement against you? Hope you had insurance. 58497[/snapback] Sorry GG. It's the other way around. Compensatory damages are not taxable, punitives are. Compensatory damages are meant to put the plaintiff in as near a position as possible to that state he/she was in prior to the incident. As such, they are generally not taxable, because they are not income. Punitives, on the other hand, are meant to punish the defendant, not to provide a benefit to the plaintiff (although obviously they do). Punitives are taxable, because they are akin to income in the sense that they represent extra money given to the plaintiff after the plaintiff has already been made whole.
GG Posted October 6, 2004 Posted October 6, 2004 Sorry GG. It's the other way around. Compensatory damages are not taxable, punitives are. Compensatory damages are meant to put the plaintiff in as near a position as possible to that state he/she was in prior to the incident. As such, they are generally not taxable, because they are not income. Punitives, on the other hand, are meant to punish the defendant, not to provide a benefit to the plaintiff (although obviously they do). Punitives are taxable, because they are akin to income in the sense that they represent extra money given to the plaintiff after the plaintiff has already been made whole. 58640[/snapback] That would make sense, although I thought that compensatory damages are taxable since they represent the compensation for lost wages & earnings due to the accident (thus taxable)
checkmate Posted October 6, 2004 Posted October 6, 2004 Sorry GG. It's the other way around. Compensatory damages are not taxable, punitives are. Compensatory damages are meant to put the plaintiff in as near a position as possible to that state he/she was in prior to the incident. As such, they are generally not taxable, because they are not income. Punitives, on the other hand, are meant to punish the defendant, not to provide a benefit to the plaintiff (although obviously they do). Punitives are taxable, because they are akin to income in the sense that they represent extra money given to the plaintiff after the plaintiff has already been made whole. 58640[/snapback] Compensatory damages can be taxable if they are for lost wages, breack of contract, or almost any other damage other than pure personal injury. As for punitive damages, some state statutes require a percentage of punitives to actually go to the state treasury. Georgia immediately comes to mind.
stevestojan Posted October 6, 2004 Author Posted October 6, 2004 ok, here we go: car accident. Hospital for a week. Major scarring on one leg. TMJ and constant headaches as a result. Not suing at all for lose wages.
jester43 Posted October 6, 2004 Posted October 6, 2004 accident?! and here i thought this thread was going to have something to do with smarty jones! (sorry you are banged up, buddy!)
stevestojan Posted October 6, 2004 Author Posted October 6, 2004 (sorry you are banged up, buddy!) 58888[/snapback] oh no, not me. A family member. And it was 2 years ago. Settlement should be soon now, and I was just wondering.
checkmate Posted October 6, 2004 Posted October 6, 2004 oh no, not me. A family member. And it was 2 years ago. Settlement should be soon now, and I was just wondering. 58890[/snapback] Your family members should be ok on taxes. It should not be taxable. But discuss it with the lawyer to be sure. By the way, when it is taxable, you have to pay taxes on your lawyer's share too. Just one of the many reasons why it is not really good to do business litigation on contingency fees.
Movinon Posted October 6, 2004 Posted October 6, 2004 Your family members should be ok on taxes. It should not be taxable. But discuss it with the lawyer to be sure. By the way, when it is taxable, you have to pay taxes on your lawyer's share too. Just one of the many reasons why it is not really good to do business litigation on contingency fees. 58895[/snapback] Does the lawyer also have to pay taxes on his share? Seems the government would be collecting twice!
checkmate Posted October 6, 2004 Posted October 6, 2004 Does the lawyer also have to pay taxes on his share? Seems the government would be collecting twice! 58902[/snapback] Yes, the lawyer does. In fact, taxes might be paid two and three times. The law firm pays taxes on firm income that was not paid out in wages and the lawyer also pays taxes on his or her income. There are ways to set up the law firm to avoid the double tax though.
USMCBillsFan Posted October 6, 2004 Posted October 6, 2004 I never realized how many smart people we had on this board. You'd never know it reading some of the posts....
Realist Posted October 6, 2004 Posted October 6, 2004 I never realized how many smart people we had on this board. You'd never know it reading some of the posts.... 58928[/snapback]
stevestojan Posted October 6, 2004 Author Posted October 6, 2004 Just one of the many reasons why it is not really good to do business litigation on contingency fees. 58895[/snapback] you had me up until "business litigation on contingency fees."
buckeyebrian Posted October 6, 2004 Posted October 6, 2004 As a lawyer and I can tell you if the settlement is "pure personal injury", that is reimbursement for medical expenses incurred and pain and suffering it is not taxable. Any aspect of the settlement or verdict that is for lost wages would be taxable. Some of the distinctions are complicated. However, if you had a lawyer representing you, he or she should have the settlement crafted in a way that all payments are pure personal injury. As an aside, the insurance company has to follow the rules too. They can only send you a 1099 if the settlement is taxable. You can PM me if you need more info. 58566[/snapback] I defend personal injury actions and the counselor is 100% correct
stuckincincy Posted October 6, 2004 Posted October 6, 2004 ok, here we go: car accident. Hospital for a week. Major scarring on one leg. TMJ and constant headaches as a result. Not suing at all for lose wages. 58876[/snapback] TMJ is a controversial diagnosis. It tends towards a malady generally unrelated to trauma, called temporal arteritis. I'll take a guess that this is a suit against an insurer.
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