Will a personal injury award affect my taxes?

Reaching a favorable settlement in a personal injury case with the help of a personal injury attorney Atlanta GA relies on can be a huge victory. Such a win can give you the compensation you need in order to recover from your injuries without worrying about how to pay for them. However, a personal injury award can have a significant impact on your taxes.


If you pay taxes on your personal injury award is determined by what kind of award you receive, and the size of the award may determine the amount that must be paid.


If the award was for punitive damages, which are damages ordered to punish the party responsible for your injuries, the IRS will view it as income. This means that it will likely be subject to an income tax, but the exact amount you will owe is variable based on the size of the award and other personal details of the case. Similarly, an award for lost wages may be taxed because it is intended to compensate for salary lost as a result of the accident. Since these wages would have been taxed had they been earned, it makes sense for them to be taxed when compensated.


Compensatory damages are seen slightly differently under tax law. Compensatory damages are designed to reimburse victims of an accident for any direct expenses that resulted from someone’s negligence. Compensatory damages can include medical expenses, property repairs, and other tangible costs. In most situations, awards for compensatory damages will not be taxed, as they are not income and should not be any more than the bills they represent. An exception to this would be if the victim received a tax deduction for these expenses. However, if the amount awarded for compensatory damages do exceed the value of damaged or lost property, they may be taxed on the extraneous value as income.


As you can surely tell, there is no simple answer to how awards in personal injury cases will be taxed. For a complete understanding of how much of your award you will owe to the government, if any, contact an experienced tax attorney. An skilled tax attorney will be able to apply the intricate tax laws of your state and the federal government to your case, and determine exactly what you should expect.


logo.fw_Thanks to our friends and contributors from Andrew R. Lynch, P.C. for their insight into the effects of a personal injury award on taxes.