Do You Have to Pay Taxes on a Personal Injury Settlement in New York? | Awards and the IRS!
Fighting a claim or a lawsuit can be overwhelming, but after successfully overcoming all of the barriers, receiving compensation can be a rewarding and exciting moment. However, before the affected party can celebrate, it's essential to understand the structure of the settlement, as they may have to pay taxes on certain types of awards.
The Law Office of Carl Maltese has recovered over $150 million in personal injury settlements and verdicts for the injured victims in Long Island, New York. They can help the affected party by guiding them on the settlement structure and its tax implications. They can explain is personal injury protection required in New York?
Do You Have to Pay Taxes on a Personal Injury Settlement in New York?
Whether or not the injured victim has to pay taxes depends on the types of damages included in their settlement amount and the nature of the injuries sustained, among other factors.
It's essential to assess the structure of the settlement, as a poorly structured settlement can lead to financial losses due to increased tax liability.
Whether it's car accident settlements or slip-and-fall negotiations, the injured victims in New York must reach out to an experienced personal injury attorney before accepting any offers.
Skilled injury attorneys on Long Island can assess the structure of the settlement and help the affected party avoid any unnecessary tax liability.
Does the Injured Victim Have to Pay Taxes on Compensatory Damages in New York?
Under personal injury law, the injured victims in New York can recover compensatory damages, which includes two main types of losses, and these are as follows:
Economic losses: These types of losses compensate the injured victim for out-of-pocket expenses they incur after the accident. Economic damages include medical expenses, lost wages, and property damage.
Non-economic losses: These types of damages compensate the injured victim for the non-monetary losses they incur after the accident. Non-economic damages are subjective and may include pain and suffering, emotional distress, and reduced quality of life.
Are Medical Expenses in Personal Injury Settlements Taxable in New York?
An accident could lead to medical expenses, including hospital bills, prescription medication, therapy and rehabilitation fees, surgery costs, home modification, and more.
The injured victim may suffer from partial or permanent disability, which could lead to future medical expenses. Fortunately, the affected parties can pursue personal injury claims to recover current and future medical expenses.
When the injured victims receive compensation, the Internal Revenue Service (IRS) and state law do not require them to pay taxes on personal injury settlements.
Is Physical or Emotional Pain in Personal Injury Settlements Taxable in New York?
When an injured victim suffers a physical injury or illness from an accident, they may experience mental anguish, emotional distress, and even pain and suffering from the traumatic event.
Non-economic damages are often available to the affected party in a personal injury claim or lawsuit, and the state law does not tax these types of losses arising from physical injuries or illnesses.
However, it's important to note that the IRS requires the victims to pay taxes on the personal injury settlements if there is pain and suffering without any physical injuries.
Suppose a rumor affects a business owner's reputation, prompting them to pursue a personal injury lawsuit against the liable party. In that case, they must pay taxes on the settlement when they win the case, as their emotional distress is not associated with a physical injury.
There may be an exception to this. When an affected party suffers from pain and suffering without a physical injury, they may receive compensatory damages, which may include out-of-pocket expenses paid towards the treatment of the emotional distress. If that happens, they may not have to pay taxes on the settlement amount.
Are Lost Wages in Personal Injury Settlements Taxable in New York?
An injured victim may be unable to return to work after suffering injuries in an accident. This can affect their financial situation, which is why they may pursue current lost wages and loss of future earning capacity by filing a personal injury claim.
Under the law, lost wages are not taxable in New York, and if they're part of the personal injury settlement, the affected party does not have to pay any taxes on these types of damages.
Are Punitive Damages Taxable in New York?
Unlike compensatory damages that compensate the injured victim for the economic and non-economic losses incurred after an accident, punitive damages are awarded to punish the negligent party for their grossly negligent actions. It also serves as a tool to deter others from committing similar acts.
Although punitive damages in a personal injury case are rare, it's essential to understand the tax implications of this type of award. The court may award punitive damages when announcing the trial verdict in a lawsuit.
Punitive damages are taxable in New York. The plaintiffs must pay taxes on these types of damages awarded in personal injury cases.
Are Previously Deducted Out-of-pocket Medical Expenses Subject to Taxes in New York?
Personal injury cases can go on for years, and the duration of the case is important for the affected party, as it can lead to tax implications.
Suppose the injured victim removes their medical expenses from the tax returns in one year and receives compensation for the same medical bills in the following year. In that case, they must declare the amount they deducted from their tax returns as income for that year.
Are Lost Wages from Work-related Lawsuits Taxable in New York?
It's important to note that any damages arising from a physical injury or illness are not subject to taxes in New York. However, personal injury settlement is taxable in an employment-related lawsuit if it includes lost wages.
The Law Office of Carl Maltese Can Help Structure a Settlement with Minimum Tax Liability
Depending on how the settlement is structured, a tax liability could be a major chunk of the victim's compensation, leading to financial losses. It's crucial for the affected parties in New York to reach out to an experienced attorney for legal advice. They can give insight to questions like Do you have to pay your medical bills from a personal injury settlement in New York?
The injured victims who have questions about the tax implications or need help structuring a settlement should call for a free consultation with a skilled personal injury attorney at The Law Office of Carl Maltese.
Whether it's a car accident settlement or any other offer from the insurance company, the experienced attorney at The Law Office of Carl Maltese can help negotiate fair compensation with the insurer and structure the settlement to ensure minimum tax liability.