Nobody wants to get injured, especially not because of the negligence of another party. However, if you or a loved one suffered an injury that was the fault of another party, you have the right to file a personal injury claim and be compensated for your injuries.
The money from a personal injury claim is often used to pay hospital bills and medical expenses, as well as to compensate for lost wages from missed work and other less tangible expenses such as pain and suffering. However, one question that comes up for people who have won a personal injury claim settlement is how the claim will affect their personal income taxes.
Understanding your settlement and New York tax laws
It’s important that you understand your settlement and which portions of it, if any, may be taxable. Listed below are some of the different types of personal injury settlements and how they relate to taxes:
- Compensatory damages. The concept behind compensatory damages is to try to return the injured victim to whole after an accident. Any compensation you receive to compensate you for a physical injury or illness is usually not taxable in New York.
- Mental anguish or emotional distress. If damages for pain and suffering are awarded because the emotional distress or mental anguish is directly related to a physical injury or illness, then New York will not tax your claim. However, if you suffered no physical harm because of the accident, it is probable that the IRS will tax your award settlement.
- Lost wages. When you suffer an injury or illness and are forced to miss time from work, the lost wages can be calculated and added to your award claim. In this case, your claim will not be taxed.
- Punitive damages. This type of compensation can be awarded to a victim if a judge or jury finds that the defendants’ actions were especially negligent, and they wish to further punish the culprit and set an example to deter people from acting similarly in the future. Although punitive damages are rarely awarded in personal injury cases, it’s important to know that if they are, they will be taxed by the IRS.
- Medical deductions. Sometimes you have to pay out-of-pocket for medical expenses while you are waiting for the outcome of your claim. If you deduct the amount you paid for medical expenses from your taxes, you may have to pay back taxes on part of the money you receive from your claim.
Because poorly structured settlements increase your chances of being taxed and could potentially cost you a lot of money, it’s recommended that you speak to a Yonkers personal injury lawyer before accepting a settlement offer.
Get skilled legal guidance from our New York personal injury attorneys
At Sayegh and Sayegh, we’ve recovered millions of dollars for our injured clients over the years. Located in Yonkers, New York, we serve Westchester, Rockland, Bronx, Dutchess, Putnam, Orange and Ulster counties.
Call today at (914) 968-5800 or contact us online for a consultation.