Personal injury settlements can give peace of mind to people who have been harmed in accidents caused by someone else's actions. These agreements mean that victims no longer have to face the other party in court, will receive compensation for damages, and can focus on recovering from this overwhelming experience.
However, getting a settlement doesn't alleviate people's worries about their financial situation and obligations. Many wonder if they should pay taxes for these awards and how to calculate them if they have to.
In most cases, the money awarded in personal injury cases is tax-exempt. However, there are some exceptions that claimants should know. Below is more information about them.
Personas Injury Settlements in Ohio: What Victims Should Know
In Ohio, people who have been injured by someone else's behavior and file a civil action against at-fault parties may be awarded personal settlements. The Internal Revenue Service (IRS) says that it only taxes gross income. Therefore, the damages awarded in these cases are tax-exempt because they don't fall within that category.
Under state laws, most damages are non-taxable. However, some compensatory damages are subject to taxes. Those intended to punish the defendant are also taxable.
Personal Injury Damages That May Be Taxable
As mentioned, some compensatory and punitive damages awarded as personal injury settlements may be taxed. Victims should learn more about each group and the possible tax implications.
Compensatory Damages
In a personal injury case, compensatory damages are intended to bring victims back to the financial position they were in before the accident. This group includes settlements that cover medical expenses related to the physical injury, for example, and similar costs. These are a few examples:
Past and future medical expenses
Emotional distress
Lost wages
Legal fees
Punitive Damages
Instead of compensating victims, punitive damages seek to punish the at-fault party for the wrongdoing and encourage them to avoid future actions that could cause harm to others. They aren't awarded in all cases.
Are All Punitive Damages Taxed?
In Ohio, punitive damages are often taxed. However, there are some exceptions to this rule. The IRS says they're taxable and must be reported as "other income" unless they're awarded in wrongful death cases.
Other Exceptions Victims Should Know
Besides some compensatory and punitive damages, the following may be taxable in Ohio:
Interest on workers' compensation
Retirement benefits
Social Security Disability
Money that is awarded as compensation for damage to property if the amount is greater than what the property was worth
Damages awarded due to a breach of contract
Compensatory damages that aren't tied to physical injuries
What Are the Non-Taxable Personal Injury Settlements in Ohio?
As explained earlier, most personal injury settlements are not taxable in Ohio as long as claimants didn't take a tax deduction for medical expenses in the previous year. In that case, the portion of the amount corresponding to that deduction is subject to taxes.
Additionally, compensatory damages awarded for emotional injuries or distress related to the physical injury caused by someone else's actions are tax-exempt. More often than not, workers' compensation is also non-taxable, even if the money is awarded to family members or dependents of a person who died while working.
Tips to Maximize Personal Injury Settlement
People accepting a personal injury settlement should consider tax laws to label and distribute the money since the IRS will always check for any taxable amount. To ensure that they're adequately prepared to answer any questions or undergo an audit, plaintiffs who win or settle their cases can take these tips into account:
Contact a personal injury attorney to make sure the settlement is as non-taxable as possible: Lawyers with extensive experience in these cases can help plaintiffs create settlements with a few taxes if they're concerned about how recovered damages will be taxed.
Document everything and keep track of all expenses and income: Whether they're sure the money will be taxable or not, plaintiffs should keep their records, documenting their expenses and income and seeking advice from a seasoned personal injury law firm in Cincinnati if they have doubts.
Do Victims Need Help from a Personal Injury Attorney?
Accident victims can benefit from a personal injury settlement but, unfortunately, this doesn't mean their financial concerns will go away. While this ensures that they'll receive compensation for the injuries they suffered due to someone else's actions and eliminates the need to handle a complex legal case in court, many are also worried about how the damages awarded will be taxable once they receive compensation.
However, personal injury attorneys can help plaintiffs who want to pursue a settlement for their personal injury claims or need advice to understand how much money of their compensation will be taxed.
What Personal Injury Lawyers Can Do for Victims
Besides negotiating with the defendant's insurance company to reach an agreement and secure a fair settlement for injured parties, attorneys can help them make the most of the amount they received as compensation for their injuries and suffering as well as inform who can file wrongful death in Ohio.
In this regard, a personal injury lawyer can assist victims with the following:
Evaluating their cases thoroughly
Pursuing fair compensation
Deciding where to allot the money
Organizing all documents to reduce taxes as much as possible
Determining if there is a tax benefit
Contact Schuerger Shunnarah Trial Attorneys Today!
Personal injury cases are always complex. Victims not only deal with the pain associated with their injuries and the trauma that a horrible accident can cause, but they also have to fight for their rights and build a strong case to recover the compensation they deserve. Schuerger Shunnarah Trial Attorneys can explain the chances of winning a personal injury lawsuit.
However, this tedious process doesn't end even after holding the at-fault party accountable for their actions and recovering compensation for the damages they caused. After winning or settling the case, victims still have to deal with taxes.
Fortunately, a lawyer from Schuerger Shunnarah Trial Attorneys can make this easier! We have extensive experience handling personal injury cases and will go the extra mile to make victims' settlement money as much non-taxable as possible. Call us today and get more information about our services!
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