IS MY PERSONAL INJURY SETTLEMENT TAXABLE?

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When a personal injury settlement is provided, those who filed the lawsuit and are receiving the compensation tend to look forward to getting the money that will help them cover the cost of various expenses. However, most people do not think about taxes and the possibility of having their settlement taxed by the Internal Revenue Service. With that in mind, DeZao Law explains what people need to know after hiring a personal injury lawyer NJ, reaching a settlement, and receiving their compensation.

Taxes for Physical Injuries

When injured in an accident, victims will often hire a personal injury attorney NJ to seek compensation. The damages provided in the settlement that is reached may cover both physical and emotional trauma. Victims should know that if they receive a settlement amount for their physical injuries they will not have to pay taxes on the amount of money that is paid out to them. That may include nerve damage, broken bones, head trauma, and more. If you only filed a lawsuit for the physical injuries and not for emotional pain and suffering, your settlement amount is tax-free.

Taxes for Emotional Suffering

A reliable NJ personal injury lawyer will often seek damages for both physical and emotional suffering for a client. Not only do accidents cause physical injuries that are painful, but they can lead to emotional suffering, including post-traumatic stress disorder, anxiety, and feelings of depression. 

Requesting compensation for the emotional suffering can cause your settlement amount to increase by thousands of dollars. However you are expected to pay taxes on money received for emotional suffering. Your personal injury lawyer NJ can make sure you understand the amount you will have to pay. That can keep you from dealing with more financial stress in the future.

Taxes for What You Pay in Lawyer Fees

You will be paying taxes for money received for your emotional suffering. And you may need to pay taxes on the fees you are paying to your lawyer. The exact amount of money paid out in taxes will depend. That is, on how much your personal injury attorney NJ charges you. That’s based on your settlement offer and the legal services provided to you. 

The best solution for dealing with taxes on your settlement and fees paid to your lawyer is to immediately set the money aside as soon as you receive a lump sum settlement. If you set the money aside, you can avoid spending it. And you can have it available to pay off your taxes when it is time for you to do so. It is far better for preparation because you might need to pay.

Worried About Settlement Taxes? DeZao Explains It All to You

With help from a trustworthy NJ personal injury lawyer, you can reach a settlement; for injuries sustained during an accident. While receiving a settlement is ideal, you may need to pay taxes on some of the money you receive. It helps to know this information beforehand because then you can set some funds aside. If you have questions pertaining to settlement taxes or simply need legal help because of your injuries, contact DeZao Law today at (973) 358-6134 or submit your information via our contact form.

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