Many times, cases of personal injury are settled during or before a trial begins. This will simplify the work of a personal injury lawyer in Atlanta GA and their client. Many of these cases are not tried in court to a verdict. If you are able to come to an agreement with the defense attorney’s proposal before trial, there is little else to do than settle the case.
The work of your lawyer then becomes reduced. All he or she has to do is to notify the defense attorney that you have accepted the offer which was put forward towards the settlement of the case. This can be done by phone, fax, letter, email or any other convenient channel as deemed fit by both parties.
Then, things can begin to happen quickly. If everything goes right, you will be paid as soon as possible and as expected. (Keep in mind the contingency fee of your attorney who may have agreed to take a certain percentage of your compensation as a legal fee). You should be back to doing what you are doing your regular routines, like going to work, taking a vacation, traveling, etc. Your personal injury lawyer in Atlanta GA has done his or her job, except one thing. They didn’t explain how taxation works when it comes to the settlement of personal injury cases. This article will help you come out with a deeper understanding of things.
Physical injury compensations are not taxable
The first most common thing about all claims of personal injury is that they are not taxed under both the state and federal law. This is unrelated to how you arrive at the settlement. Claims of personal injury are not taxable, simple. Whether you go to trial and the court announces you as the winner of the verdict or you didn’t, taxation does not affect your personal injury claims. Neither the state government nor the federal government will tax the money you earn over the verdicts or settlement proceeds in the majority of claims of personal injury. To be specific, the law relating to federal tax usually does not include damages collected as proceeds from physical sickness or physical injury from the gross income of taxpayers.
In reality, the damages that are paid as compensation for claimants over things like medical bills, lost wages, emotional distress, pain and suffering, attorney fees and loss of consortium are not taxed once they come from physical sickness or personal injury. To be clear on some things, physical sickness refers to a claim which is about the illness. As an example, a person who has been exposed to germs negligently and becomes sick can seek compensation, claiming all the expenses he/she spent to recover from such illness. This compensation is not taxable.
There are exceptions where compensations are taxable
Generally, there are few exceptions to the taxation of compensation and our personal injury lawyer in Atlanta GA might be ready to explain to you if you ask.
Taxes relating to breaches of contract are usually taxed. It doesn’t matter if you have suffered physical sickness or physical injury, damages that are related to breach of contract will be taxed especially if such breach of contract is the specific cause of the injury you suffered. Also, when the basis of the lawsuit is a breach of contract, expect to be taxed accordingly.
Moving on, punitive damages will also be taxed. If you are familiar with how punitive damages are handled in court, your personal injury lawyer in Atlanta GA will plead with the jury or judge to separate the court’s verdict into punitive damages and compensatory damages. If this is followed, you will be able to clearly show part of the verdict to the IRS as compensatory damages, and they aren’t taxable.
Another situation where the verdict of personal injury is taxable is in the area of interest of justice. The majority of states in the US hold court rules which extend the interest to a verdict for the period that the case has been waiting for trial. Here is an example to make things clear: say you file your lawsuit on August 1, 2019, generally, you are expected to receive interest over the verdict beginning from August 1, 2019, and continue till the date when you get paid. If you win the case on August 10, 2020, but an appeal is received from the defendant, making payment to be delayed till October 31, 2021, your interest on the unpaid verdict will be 2 years and three months. As explained earlier, this will be taxed.
What if the claim is for only emotional injury?
Do not forget that the verdict or settlement is non-taxable provided it is developed from a physical injury. Now, if you suffer emotional injury, you will be taxed on the damages. The only thing you can do to avoid such tax is to prove or show that you have a physical injury even if it is only a slight one, ensuring your settlement non-taxable as much as possible.
This is where you will be glad to have hired a personal injury lawyer in Atlanta GA. This kind of case can be handled and helped by a professional, offering you legal advice and tips on actions and consequences.
At times, it is possible to have more than one claim against the defendant. Most commonly, victims file two claims; one is related to a claim of personal injury and the other is not. In a case where the claim of personal injury is the bigger one between the two, you might want to explicitly state the amount paid for settlements related to personal injury claims. You will also state explicitly the amount that is related to non-personal injury claims.
The IRS will always find ways to challenge the rules about the taxability of claims, especially where you seem exempted from taxes. But when you allocate your settlement as described above, you have a higher chance of your settlement been excluded from taxation.
Whenever you are confused, meet with a personal injury lawyer in Atlanta GA. Sit down with him/her and analyze your fears. They will be ready to help.