A lot of thought and worry goes into the preparation of a personal injury lawsuit – including choosing an experienced attorney – but there are also issues accident victims must consider after the successful pursuit of a settlement.
One of the reasons I write for the NY Injury Law Blog is to answer questions that people commonly have about personal injury settlements. The Ziff Law Firm’s Accident and Car Crash FAQs are a fantastic resource for learning what you need to know. Here’s an excerpt from the FAQ on an important issue:
Do I have to pay taxes on a personal injury settlement?
No, generally you do not have to pay taxes on a settlement. In New York and Pennsylvania, compensation for your injuries and pain and suffering is tax free.
There are a few exceptions (aren’t there always?!), however. Taxes may be due if:
- A portion of your settlement was specifically designated as compensation for lost wages.
- In a death case, an award for pain and suffering is generally taxable to the estate. In some instances, there are legal ways to allocate the monies to the “wrongful death” cause of action (which is not taxable to the estate).
- It’s probably obvious, but remember when you invest settlement proceeds in taxable investments, any profit or gain is taxable.
A knowledgeable personal injury attorney is aware of these exceptions and will make sure that your settlement is properly structured so as to avoid or minimize any taxation.
It’s bad enough being injured, and then having to bring a lawsuit to obtain proper compensation and payments for your disabilities. Can you imagine the additional ordeal of having to pay income tax on that money?
Fortunately, the government does not classify injury settlements as “earned income,” but as what they truly are: just compensation for pain, suffering and disabilities caused by someone else’ s carelessness.
Thanks for reading,
James B. Reed, Esq.
Personal Injury & Malpractice Attorney
Ziff Law Firm, LLP
303 William St., Elmira, NY 14902
Tel. (607) 733-8866 Fax. (607) 732-6062
Toll Free 1-800-943-3529