Are Personal Injury Settlements Taxable in PA and NJ?
How Are Personal Injury Settlements Taxable in PA and NJ?
Tax season is here, and you might be wondering, Are personal injury settlements taxable in PA and NJ? The answer is yes and no.
Money that is received in a court settlement is usually considered income and is therefore taxable. However, personal injury settlements are an exception, so the money you get after a slip and fall or car accident is likely not taxable income.
Funds that you receive in a personal injury settlement can be placed into different tax categories. The money is allocated for various expenses that resulted from your accident, including funeral expenses, lost wages, car repairs, or medical expenses. Each category has its own relationship to taxation, so when you ask are personal injury settlements taxable - it depends. Let’s take a look.
Money for a Medical Condition in PA and NJ
If you received a settlement related to a medical condition, injury, or illness and you have not taken an itemized deduction for medical expenses in previous years, then your settlement is non-taxable. However, if you have paid out expenses for injury or illness over the course of more than one year, and in past years you did take a deduction for medical expenses, you do have to include that portion of your settlement in your taxable income.
Compensation for Emotional Distress in PA and NJ
If you have received money for emotional distress, it is treated the same as it would be for physical injury. It is non-taxable as long as you have not taken an itemized deduction for medical expenses in the past. However, if the emotional distress is unrelated to physical injury or illness, then the award is taxable.
Loss Of or Damage to Property Compensation in PA and NJ
Loss in value of your property is another confusing area. In this case, it is important to know the base value of your property before the accident. If the compensation you receive is less than that value, it is not taxable. If it exceeds the value, then it is taxable.
Are Personal Injury Settlements Taxable If They Were for Lost Wages?
If you have received compensation for lost wages, wrongful termination, or for back pay, this money is taxable and is also subject to social security and employment tax withholding. If the money you received was awarded as compensation for loss of business, that money is considered taxable income.
What About Punitive Damages in PA and NJ?
Punitive damages are awarded in some personal injury cases when a jury wants to punish the person or company that is liable for the injury beyond paying for expenses.
In wrongful death cases, when someone's negligence has caused a death, it is fairly common to add punitive damages to a settlement. Because this is a cash award, punitive damages are taxable, even if they were awarded in the context of a personal injury settlement. Likewise, interest that has accrued during the year on settlement award money is considered taxable income.
Non-Injury Claims Are Taxable in PA and NJ
Personal injury awards are not taxable when they relate to obvious illness or injury. Money that does not relate to physical injuries, such as unlawful discrimination or breach of contract, is considered taxable income. Attorney's fees also may be taxable, so it is a good idea to clarify this with an accountant.
How Do I Know If I Have a Personal Injury Case in PA or NJ?
Compensation in personal injury cases varies widely. The very vast majority of cases are settled out of court, and the injured party is awarded money to pay for those expenses directly associated with the injury or illness. A very small number of cases go to trial. These usually include wrongful death and involve large settlements. The outcome of a personal injury case is determined by the negligence of the person responsible, the severity of the injury, and how directly the negligence caused the injury.
Get Started With Your Personal Injury Case
If you have been injured in an accident, you may have a lot on your mind. You might be wondering how you are going to support your family if you can no longer work. You might be concerned about trauma, stress, depression, and how all of this affects your loved ones. The most important thing you can do for the people in your life is to get the help you need right now.
A personal injury attorney can help you sort out the details of your accident and get you the compensation you deserve. If you're asking, Are personal injury settlements taxable, there will be plenty of time in the months ahead to worry about your tax liability. Right now, reach out for help.
Let a Philadelphia Personal Injury Attorney Worry About It
You may be eligible for monetary compensation for your injuries. This money can help you pay for medical expenses, lost wages, attorney's fees, and much more. But when you receive that money you may wonder, Are personal injury settlements taxable?
The experienced team at Mattiacci Law, LLC, care about getting you the maximum compensation allowed by law. We are available to answer your call any time of the day or night, so call now and let us get started on your personal injury case.