With only a couple of weeks remaining until the end of this year’s tax season, the Fort Lauderdale personal injury lawyers at our firm have been contacted by clients who are concerned about the tax implications on their personal injury settlements. They want to know if their personal injury settlement is taxable. In Florida, typically settlement awards are not taxable, however there are some exceptions and a settlement may subject to federal taxes depending upon the nature of the lawsuit and the type of damages the plaintiff was awarded in the settlement.
For example, punitive damages that are awarded in a Florida personal injury lawsuit are not excluded from federal income taxes, which mean that if you are awarded these kinds of damages in your lawsuit, you will be required to report this as income for taxing purposes. Punitive damages are those imposed against the defendant to punish him or her for the wrongful conduct they have committed against the plaintiff. The Internal Revenue Service (IRS) considers that this form of monetary compensation as a windfall for the plaintiff because the injured party was not compensated for factors such as lost wages or pain and suffering.
Further, our Fort Lauderdale accident injury attorneys recommend that clients seek the assistance from a tax attorney or certified public accountant (CPA) who can guide them in preparing their income tax returns to ensure that they are in complaint with the law. The tax laws governing personal injury settlements are very complex and the government often modifies the regulations so plaintiffs should not proceed in filing their tax returns on their own when these matters are present. However, as a general rule, compensation the plaintiff receives as a result of a physical injury or sickness is excluded from gross income calculations, but a tax attorney or CPA is in a position to further assist the client with how these matters should be treated on a federal income tax form.
In addition, damage awards based upon an emotional distress claims can further complicate matters because the IRS does not consider emotional distress itself as a physical injury or sickness. But if the award was to compensate the plaintiff for emotional pain that resulted from the physical injury or sickness, then this amount could be excluded from gross income. Yet, on the contrary emotional distress resulting from injury to reputation must be counted in the gross income calculation, unless the damages were awarded for medical care due to the emotional distress. Similarly where the damages awarded are from an employment discrimination case, there are specific federal, state and local laws which apply to the exclusion of gross income for tax purposes.
If you or a family member received a personal injury settlement and are worried about the tax implications affecting your awards, consult with a professional such as a CPA or tax attorney. Also, our Fort Lauderdale personal injury attorneys represents individuals and their family members who have been harmed or injured in a personal injury accident including a wrongful death, automobile negligence, slip-and-fall, dangerous drugs, or premise liability. If you have been hurt in any of these accidents, contact our office today to learn what legal options are available to you.See Our Related Blog Posts:
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