55Most people who have received a personal injury settlement are not well-versed in how the income will impact their taxes, but your San Antonio personal injury lawyer at Brylak Law understands how the Internal Revenue Service will view settlement income. The question of whether a settlement is income is basically determined by what the damages are actually covering. There are some settlement funds that are considered income, but the determination can also get complicated when damages are all combined into one payment. Because of this potential problem, your San Antonia personal injury lawyer will normally request all settlements be itemized in detail. In addition, taxable income status of the settlement can also be different when damages are awarded in a trial as opposed to being settled out of court. In many cases a settlement will be paid in stages or with multiple bank drafts that indicate what claim is being paid. When dealing with the IRS, it is better to err on the safe side.
Personal Injury Settlements
Settlements for physical injury are not viewed as income by the federal government tax bureau in most cases. Claims for personal injury are classified as non-economic compensatory damages for pain and suffering endured by the injured plaintiff. This condition is also why your San Antonio personal injury lawyer will most likely request other compensatory damages be paid separately. Property damage settlements, such as paying for a vehicle that was damaged in an auto accident, are considered as financial reimbursement and also exempt from taxable income status. This means that settlements for an auto accident that only include personal injury and property damage are clear from a government taxation claim. Other compensatory damages that are not viewed as income are recovery for medical bills, expenses for seeking treatment and meeting medical appointments, and compensation for lost wages if the inability to work is directly related to the particular personal injury. The only time that a physical injury is considered as income is when the injury occurred as a result of a breach of contract. In addition, the particular breach must also be the basis of the lawsuit.
Punitive Damage Awards
While most compensatory damages are actually compensation for lost ability or property, punitive damages as a result of a trial are considered income because of the purpose of the punitive award. Punitive damages cannot be awarded by the court. Punitive damage awards are always a component of a trial when the jury decides the case is based on such egregious negligence that it is borderline criminal. It is meant to serve as a message that should be sent to negligent party or parties that the particular behavior constitutes the need for some form of punishment. This means that those particular damages are not recompense for lost finances, but rather an award to make the plaintiff whole by authorizing an additional award. Your San Antonio personal injury lawyer will always request that punitive damages be paid in a separate draft, or installments in some cases, and that the compensatory damages also be duly noted in the terms of the settlement.
Emotional Damages Claims
Damage awards for claims of emotional distress are not necessarily due to physical injury, so the taxable status for emotional distress awards are taxable by the federal government. However, other claims for loss of consortium, which also includes a component of emotional distress, are not taxable because physical loss can also be included in the consortium loss claim. A general claim for loss of consortium encompasses much more than a single claim of emotional distress that does not result from the death of spouse or child. That is why it is important for your San Antonio personal injury lawyer to craft your claim for emotional distress into a larger claim whenever possible, as it can have a major impact on the taxable assets classification of your settlement. You can count on your legal counsel from Brylak Law to consider the taxation possibilities for any settlement arrangement, including how state and local law will also affect the settlement.
Contact a San Antonio Personal Injury Lawyer
Anyone with a potentially pending high-value settlement should contact the legal professionals at Brylak Law at (210) 372-8111 for their professional advice on how you will want your settlement structured for maximum gain.