Perhaps you were involved in a car accident or a medical malpractice lawsuit and you’ve been awarded compensation to recoup some of what you’ve lost financially. Many people in this situation come to us with a concern that’s quite frightening. Will the IRS tax them on their personal injury award?
Your Claim Isn’t Taxable
When you come in to speak to our Massachusetts personal injury attorney, the first thing you will learn is that you have rights not only to compensation for the losses you’ve sustained due to the negligence of another person or business, but also directly related to protecting the funds you receive. Under federal and state law, proceeds from a personal injury settlement are not considered income. As a result, the Internal Revenue Service does not apply income taxes to these funds.
What Types of Funds Are Protected?
That’s not to say that your future income is protected from IRS taxation. Rather, compensation received from an injury, such as from a slip and fall or car accident, is not taxed. It does not matter if you receive these funds in a single lump sum payment after your award or if you receive a structured payout that continues to make payments to you throughout your lifetime. Additionally, this includes any type of settlement whether it is done through jury or through an insurance claim. Because these funds are thought of as compensation for loss and not income, it does not have the same type of income reporting requirements.
When There Could Be Taxes
In the state of Massachusetts, your personal injury attorney will be very specific with you about what you are being awarded and why. If your award is just for emotional losses, with no physical loss applied, your award may be taxable. If you’ve been awarded compensation for lost wages, this is considered income (because it would have been income paid to you at that time). This may be taxable as well. Also notable is interest awards. In some cases, you may be awarded an amount based on what is owed to you (which is not taxable) as well as interest (which is considered income). The interest portion may be taxable because it is income to you.
Wrongful Death Matters
Another important difference applies to wrongful death settlements. In the state of Massachusetts, there could be an estate tax that applies. If the wrongful death claim is awarded to family members directly and it avoids the individual’s estate and probate process, then it is not necessarily taxed. If, on the other hand, it goes through the state’s probate process, it could be levied a tax based on the value of the estate. If you are involved in a wrongful death lawsuit, be sure you’ve talked at length with your wrongful death attorney to best understand the award here based specifically on the types of losses claimed.
Secure the Legal Support You Need Today
Because every case is very different, it is wise to hire an independent lawyer dedicated to helping you to recoup all of your losses. When you have Attorney Peter Ventura by your side, you get the support you need throughout the legal process including an understanding of taxation. Please call our office today for a free consultation toll free at 508-755-7535 or contact us online immediately.
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