A gavel with money and the words, is compensation taxable?

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When an individual is injured due to an accident caused by the negligence of another, they have the right to seek out compensation for their injuries. This compensation can help them cover the costs of medical expenses, damages, and lost wages. However, there are some individuals who have reservations about seeking this aid due to fear that the compensation will be taxable. To help quell those fears, our expert attorneys at Hernandez Law Group, P.C. has the answers to the question, “is my compensation taxable?”

Physical Injury Compensation

By federal law, compensation that has been awarded due to physical injuries that resulted from accident negligence is not taxable. This is because the proceeds that come from the settlement are meant to be used to cover medical expenses and damages. The following damages are not taxable if they were awarded due to physical injury or illness:

  • Lost wages
  • Medical bills
  • Emotional distress
  • Pain and suffering
  • Loss of consortium
  • Attorney fees

Are There Any Exceptions?

There are a few exceptions to the tax rule. While the law does protect individuals from paying taxes for compensation awarded for physical injuries, this becomes void when the damages were caused in part to a breach of contract. For example, this happens when the individual who was injured took some action that resulted in partial responsibility for the accident.

Punitive damages are damages that are used to punish the defendant for poor behavior or conduct (often the case in DWI accidents and parking lot assault accidents.) Typically, the lawyer will ask the jury or judge to separate its verdict concerning compensatory reward and any punitive damages. This will help prove to the IRS which damages were taxable and which weren’t, saving you from paying more money than you have to.

Emotional Injuries can be used to gain compensation, but when it is only emotional distress as the leading cause for your case, you can expect to pay damages. This is because emotional trauma and distress do not fall under the category of physical injuries. This is why many attorneys will try and help you show proof of any type of injury, which could lead to the worsening of emotional distress, no matter how minor the original injury was.

A Law Firm That Will Fight for You

Our team at the Hernandez Law Group, P.C. is dedicated to not only ensuring that you get the compensation you deserve, but that you also understand and are comfortable with the process. The accident that led to your injuries was traumatic enough and we understand that you want to focus on getting your life back to normalcy. With a no-win, no-fee agreement, our team completely removes the risk of seeking compensation for your accident. Contact our team today to schedule your free, no-obligation consultation.