Updated: 2 days ago
So now that you have gone through that rigorous process of filing a personal injury claim and have settled the agreement, you’d think that was it, right? Well, you may be in store for a surprise when you pay out your taxes, but that is all dependent on your case. Let’s go into the specifics…
Why did my insurance company pay for my medical bills?
In the state of Florida, no matter who is deemed at fault, your first $10,000 in medical bills comes out of your insurance because we have mandatory Personal Injury Protection (PIP). PIP is used before any settlements are even made.
But once you have gained a settlement check, is that money just yours to use without being taxed? As we said, the answer may vary depending on the damages caused. Here is the breakdown for the state of Florida.
Do I have to pay taxes on my settlement for:
Medical expenses incurred from physical injury or sickness are not taxable.
Pain and Suffering:
These are damages that caused you physical and mental suffering from an injury. Because these types of damages are hard to quantify, it makes it difficult to determine how much you should get in a settlement. Once a settlement is agreed upon, in most cases, it is not taxable.
Unlike with pain and suffering compensation, this type of distress is taxable.
This may include pain and suffering, but it is a fully separate category. The tax situation in this case depends, although often you will be taxed when harassment is involved.
If you were compensated for lost wages because of an injury making you unable to go to work, you will be taxed on that money.
If you receive interest in your personal injury claim, it is taxable. That is because the interest you received goes beyond the compensation you got.
Where do the rules on what is taxable for settlements come from?
The entity in charge of making these rulings is the IRS. Any payment you receive because of illness or injury is exempt from taxation according to the law. The IRS will individually assess your case in totality to judge what the settlement is for. They may review what your settlement says and search for any inconsistencies and question you.
What can I do to protect myself?
There are certain steps you can take once a settlement is reached to ensure whether it is taxable. Again, the IRS will look at your case and determine that, but you alone, with some knowledge, can figure out what may be the case. You’ll want to make sure your settlement is detailed and does not just state how much you will receive. You will need it to state exactly what the amount of money is for.
It is important to know the facts of your case and which types of damages you can incur. That’s why hiring a personal injury attorney will help to make your case go over more smoothly. They will ensure you know whether your compensation is taxable. So if you or a loved one have been involved in an accident, call Demesmin and Dover Law Firm. We will ensure you gain the compensation you deserve.