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Victims of an accident are entitled to compensation for their losses. Personal injury lawyers in Barrie refer to such losses as damages. Can an accident victim be taxed for the money that covers claimed damages?
Was the damage the result of a physical injury?
• Did treatment of the injury lead to a pile-up of medical bills?
• Did the victim lose the chance to take advantage of an opportunity, due to the forced recovery?
• Did the harm that was done to the victim’s body cause pain and suffering?
• Did the injury’s effects include the development of anguishing disturbances within the mind or a traumatic upheaval of the victim’s emotions?
• When the money for damages has come by way of compensation for reported losses, it is not taxable.
Did the claimant/victim lose wages during the recovery period?
Lost wages would be taxable. That means that the recipient of the compensation for lost wages would owe money for both state and federal taxes.
Other times when money received for a personal injury claim would be taxed:
Sometimes claimants use the medical bills that had piled up during an earlier accident as a tax deduction, when filing their annual income tax form. Understand that in the eyes of the IRS, such deductions count as taxable income. Consequently, the money that a defendant had been provided as compensation for previous medical bills would ultimately get taxed. Punitive damages also get taxed.
What are punitive damages?
That is additional money that a defendant might need to pay a plaintiff, if the guilty defendant had committed an egregious error, usually a violation of the law. Only a court has been authorized to hit certain defendants with the need to pay punitive damages.
Why might a court order the payment of that added amount of money? Court’s issue such an order in the belief that punishment of the violation could reduce the chances for the defendant’s decision to repeat performance of the undesirable and unlawful action.
Do plaintiffs have to accept the receipt of money that must be claimed as taxable income? If a court had issued an order for 2 or more punitive damage payments to the plaintiff, the plaintiff’s lawyer might seek to reduce the amount of taxable money. Lawyers understand how to look for places where a client could deserve an added award.
A client’s lawyer could ask that the deserved award be substituted for one of the punitive damage payments. That would not decrease the financial load on the defendant, but it would reduce the amount of money that the client would have to report on his or her tax form. Hence, a court would be apt to agree to such an arrangement.