The government taxes wages; it also taxes any winnings obtained by playing the lottery. What about the money received as compensation for the losses sustained, following a motor vehicle accident? Can the government tax that money?
There is no tax on most of the funds received in a settlement.
The bulk of those funds serve to help the victim/plaintiff recoup the money lost, due to the cost of treatments for injuries, or the cost of repairs to damaged property. The money that acts as compensation for such costs is not taxable. Still, not all of the funds from a settlement cover such costs. Some of them cover other losses. Are any of the additional funds taxable?
Some of the additional funds may be taxed.
Money that compensates for emotional damage may be taxed. If the victim’s emotional damage was caused by an accident-related injury, then money used to treat such damage cannot be taxed. On the other hand, if the victim’s emotional damage had not direct link to the accident that caused any physical injuries, then the money for emotional damage might be taxed.
Sometimes, the person responsible for a given accident gets hit with the need to pay for punitive damages. Those are not anything that harmed the plaintiff. Rather, such damages get used by the legal system, in hopes of discouraging the defendant from repeating the actions that have caused the plaintiff to suffer a great deal of harm. Because the money that covers punitive damages does not help with the re-cooping of losses, the government can tax that same money. That fact highlights one way that a personal injury lawyer can help a client that has been the victim of a defendant’s egregious behavior.
During a court trial, a personal injury lawyer in Citrus Heights can negotiate with the judge. During those negotiations, the plaintiff’s attorney can argue that more money be offered for specific losses, while lowering the amount of money charged for punitive damages. That reduces the amount of money that the plaintiff might need to give back to the government, in the form of taxes.
Another way that the services of a personal injury lawyer might prove useful:
It could be that the plaintiff suffered some form of psychological damage. For instance, someone that has been in a car accident might fear the prospect of re-living that incident, and, thus, might have a fear of the possible need to drive. In that case, the person that is afraid to drive might find it necessary to undergo a treatment for that unrealistic phobia. A personal injury lawyer could argue for funds to cover the cost of such a treatment. That is a task that only experienced lawyers can handle.