If you receive a settlement for your personal injury lawsuit, it’s likely you won’t have to pay federal taxes on the amount. However, there are exceptions, and it’s important to know the factors that affect whether or not you’ll have to pay.
After You Get a Personal Injury Settlement
Once you get your settlement amount, your lawyer will deduct legal fees from the full amount, leaving you with the rest. In general, neither the federal government nor the state of Virginia will be able to collect any proceeds that you received in your personal injury lawsuit that compensate you for physical injuries. This includes damages that compensated you for lost income at work, medical expenses, and pain and suffering. These are called compensatory damages.
There are exceptions to this rule, however. If you received punitive damages, this amount will be taxable. In addition, if you have a claim for emotional distress or employment discrimination but did not suffer an actual physical injury as a result, this settlement amount will likely be taxable. Insurance companies typically cut one settlement check, which will not account for the different types of damages.
Work With a Tax Professional
When it comes to questions about taxes or dealing with the Internal Revenue Service, it’s always best to contact a tax professional. The federal government will have access to your settlement information, and the insurance company will likely submit a 1099 form to report the amount of compensation you received. Every personal injury settlement is different, so you will need to get advice on yours from a qualified tax professional to determine if any taxes will be due.
Call Us for Help
Have you been injured because of another person’s negligence? Please contact us for a free, no-obligation consultation to learn about your rights and to discuss the actions we can take on your behalf to recover the damages you deserve. Since we work on a contingency fee basis, you won’t owe us any upfront legal fees. We don’t get paid until you do. To learn more, please contact us here.