Regardless of why money is received, Uncle Sam gets his fair share, and this includes personal injury settlements
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After hiring attorneys like Winer, Burritt & Tillis LLP, personal injury victims are available to win or settle their case. Once the money is received, many plaintiffs are surprised to learn the IRS expects to receive their fair share. In fact, some don’t realize this is necessary until the 1099 Form comes in the mail.
By visiting sites like WMLawyers\.com, accident victims and their families can make plans for paying the required taxes before agreeing to a settlement. It’s even more important for them to understand that higher than normal taxes are required for lawsuit settlements, which is something that was put into action with the recently passed tax reform law.
Some plaintiffs are taxed on the attorney fees paid, too, even if the attorney requires 40 percent of the settlement received. This means for a $100,000 case, the injury victim has to pay taxes on the full $100,000, even if the attorney they hired receives $40,000. The newly announced law doesn’t typically impact cases involving a physical injury with no punitive damages. It will not impact plaintiffs who are suing their employees, but there are new wrinkles in sexual harassment cases.
The taxes charged for personal injury settlements is dependent on the origin of the claim. For example, if a person is laid off of work and then sue to seek wages, they are going tobe taxed as wages, and probably have to pay through a Form 1099 for any emotional distress. However, if a person sues for damages to their condo by a building contractor who is negligent, the damages may not be considered as income. Sometimes, this recovery is treated as a reduction in the purchase price of the condo. It’s important to understand the rules are full of nuances and exceptions, which is why it’s important to be careful when it comes to settlement awards and how they are taxed, especially after the post-tax reform.
The recoveries received for physical sickness and physical injuries are tax free, but the symptoms related to emotional stress aren’t physical. Prior to 1996, all “personal” damages were completely tax-free, so the emotional distress and defamation produced a tax-free recovery. Since 1996, the injury has to be physical. If a person sues for intentional infliction of emotional distress, the recovery received is taxed. The physical symptoms of emotional distress, such as stomachaches and headaches, are taxed, but the physical injuries or the sickness that occurs are not.
The rules result in some cases being judgment calls. If there’s an employment dispute and the individual receive $50,000 extra due to the employer causing an ulcer, is the ulcer physical, or is it just a symptom of emotional distress? There are some plaintiffs who take aggressive positions through their tax returns, but that’s often a losing battle if the defendant opts to issue an IRS Form 1099 for the settlement. It’s best to haggle over the tax details before signing a settlement agreement.
Each personal injury case comes with specific challenges that make it unique to others. Understanding the tax implications of personal injury settlements is the best way for a person who is receiving the settlement to understand what they are going to have to pay to the IRS and how much they will receive after fees and taxes
Contact Info:
Name: Gus Shuwayhat
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Organization: Winer Burritt & Tillis LLP
Website: https://www.wmlawyers.com/
Source URL: https://marketersmedia.com/understanding-the-tax-levied-on-personal-injury-settlements/88892879
Source: MarketersMEDIA
Release ID: 88892879
