When a personal injury lawsuit comes to a successful end, either by settlement or award, the victim will receive financial compensation for the losses they suffered, minus attorney fees and other legal costs. Up until that point, many victims do not realize there may be tax consequences on the funds they receive. The following is a brief overview of what may be taxable and what isn’t. For a more detailed explanation and assistance if you have been injured, call Shapiro & Appleton to speak with one of our skilled Virginia personal injury attorneys.
In most cases, personal injury damages are not taxable if the funds are for a physical injury or illness. This is true for both settlements and judgment awards. These funds are not included in the gross income amount in the victim’s tax returns. This also applies to state income taxes. An exception to that rule is if the victim deducted medical expenses for the injury on a prior tax return.
The financial compensation for lost wages that a victim may receive as damages are taxable. This is because has the victim earned these wages, this amount would have been included on their W-2 form and would have been required to be reported as taxable income.
In some cases, punitive damages may be awarded, such as a drunk driving crash. Unlike economic (medical expenses, lost wages) and noneconomic (pain and suffering, mental anguish) damages which are meant to compensate the victim, punitive damages are meant to punish the at-fault party. Punitive damages are usually taxable.
Determining Tax Obligation
In most truck accidents and other personal injury cases, the attorney works on a contingency basis. This means that they charge no upfront fee to the victim, but instead will only get paid if they are successful in obtaining financial compensation, either through a judgment or settlement. At that point, the attorney will receive one-third of the amount the victim is awarded. If the victim is required to pay any tax obligations, the amount of tax is based on the final amount after the attorney fees are deducted.
Because there are so many variables in what and how a judgment or settlement may be taxed, it is important to have a skilled Virginia truck accident attorney representing you. Your attorney will ensure that the final agreement specifies in detail how the award is broken down. Failure to have this specific breakdown could result in the victim paying more in taxes than they are legally obligated to.
Let a Virginia Truck Accident Attorney Help
If you or a loved one has been injured in a truck crash, contact Shapiro & Appleton to speak with a Virginia truck accident lawyer to find out what legal recourse you may have. Call our office today at 800-752-0042 to schedule a free case evaluation.