People who have suffered a personal injury should think about filing a lawsuit against the responsible party. The compensation won by these suits can help injured people pay for their medical expenses. Accident benefits lawyers, such as Oatley Vigmond in Toronto, will be able to help plaintiffs file a suit, argue it and handle settlement paperwork and taxes. Once a person has won compensation, he or she should take the time to consider the tax implications of their settlement.
Are Personal Injury Settlements Taxable?
The first thing that plaintiffs need to know about personal injury cases is that they are governed by tort law. Tort law means that the law in the cases is determined by the states. Whether or not plaintiffs have to pay taxes on their settlement will ultimately depend on which state they live in. It is also essential to keep in mind there's wide discretion to change these laws whenever a state sees fit. That being said, the standards on this issues are generally very similar from state to state. Most states will not require plaintiffs to pay tax on compensatory damages. However, they will tax any punitive damages which are paid out.
Compensatory Damages and Taxes
In most states, people are not required to pay taxes on compensatory awards. The word compensatory refers to money that is awarded for recovering medical bills and lost wages. The logic behind this is that the court understands that individuals need to pay their bills. Due to this, taxing this money will limit their ability to pay for costs related to their injury. Courts also recognize that plaintiffs will need to pay lawyers fees out of their judgment.
Paying Taxes in Punitive Damages
When a personal injury case presents a situation that is very dangerous, negligent or egregious, the court may allow people to recover punitive damages. This term refers to money that is used to punish defendants, not compensate victims. Plaintiffs should be aware that punitive damages are only handed out occasionally. As this income is not meant to cover expenses such as medical bills, it is taxable in most states.
Anybody who has suffered a personal injury should do their best to recover medical costs and lost wages. This will make their recovery less stressful. The last thing people want is to need to worry about money when they're trying to get better. The most people can expect to get awarded is compensatory damages. In case a plaintiff does get punitive damages, chances are it will be heavily taxed. Individuals who are unclear about just how much tax they have to pay should employ the expertise of an accountant. This will make sure that no mistakes occur at the conclusion of the tax year. Click here for more details.
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