The Office of Traffic Safety conducted a study on distracted driving, and found that almost 30% of Minnesota drivers are not paying attention. Car accidents, slip and falls, and nursing home abuse are all common reasons to file a personal injury claim.
When people come to us, it is because they need Minnesota personal injury lawyers. People often ask if they have to pay taxes on their personal injury settlement. As experts, we want to help you out.
The Fundamentals of Taxation and Personal Injury Settlements
Most of the time, settlements and verdicts are not taxed. As with most topics concerning the law, there are many exceptions and qualifications that you need to understand.
Settlements and judgments are taxed the same. No matter how your case ended, it is likely that you will not be taxed. If you settle, you may have a little bit more flexibility in case of an audit.
According to the IRS, you should not include settlement proceeds in your income. That is, unless you have itemized deductions for medical expenses for prior years. If you have paid for medical expenses over several years, you need to allocate the part of the proceeds that you used at the doctor’s office on a pro rata basis.
In the state of Minnesota, you can sue for punitive damages. This means that if someone acted in a way that showed an intentional disregard for the safety or rights of other people, you can get additional money from them to punish them. Punitive damages are taxable and must be reported as “Other Income” on line 21 of Form 1040.
Some cases take a while to resolve. If this happens, a judge may award interest on the personal injury verdict. While a majority of this compensation is not taxable, the interest is.
Minnesota allows its citizens to file a lawsuit based on emotional distress. Psychological injuries are treated the same way as physical injuries, which is to say that they will probably not be taxed.
Certain settlements and verdicts are employment-related. For example, you may be awarded compensation for unlawful discrimination or involuntary termination. Some of the proceeds can help you recover some of the lost wages. These payments are subject to regular employment taxes, and should be reported under “Wages, salaries, and tips”.
Like with personal injury cases, most awards or settlements from wrongful death suits are not likely to be taxed. Many of the rules that apply to the taxation of compensation for personal injury also regulate wrongful death lawsuits.
It is a good idea to talk to a lawyer about the tax situation. An experienced lawyer will know how to structure your compensation so that you do not pay a dime more than you absolutely have to. Not everyone will have the same results for their case, and you will need compensation that is specific to you.
Contact 612 Injured Attorneys Today
We have a team of dedicated, reliable, and resourceful lawyers who are ready to fight for you. When you need Minnesota personal injury lawyers, our team can be there for you. If you have been injured, there is help available. Call us at 612-Injured.