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Personal injury attorney lawyerA good Orange County personal injury attorney should be prepared to advise his personal injury clients of the tax consequences of a settlement or money damages awarded in a jury verdict. In order to determine whether the settlement is subject to taxation, the key question is whether the parties have set forth the amount that is to be paid for the plaintiff’s pain and suffering, past and future medical expenses, or punitive damages.

Imagine winning $1 million in a personal injury award, only to find out that it will be taxed and the IRS will take away almost half the money. Although the majority of personal injury settlements are NOT taxed, some are, which makes it crucial for you to consult with an Orange County personal injury attorney.

Under IRS Code Section 104, gross, or taxable, income does not include damages that you receive as part of the settlement or trial verdict on account of personal physical injuries or physical sickness. However, if you collect money for lost income and the settlement agreement specifically contemplates this payment, this amount may be subject to taxation.

In order to ensure that the personal injury settlement or verdict remains tax free, you must have suffered some level of physical injury. However, it is important for you to realize that if a payment is made purely for emotional distress, which does not arise from or involve a physical injury, your claim may be subject to income tax.

Your Orange County personal injury attorney will increase your chances of avoiding taxation by making sure that both parties specify their intentions concerning the nature of the payment and/or the intended tax consequences in the settlement agreement.

We Are Here to Help

If you would like to discuss the specifics of your personal injury accident case with an experienced lawyer and decrease your chances of being taxed on your future settlement or verdict, call the Law Offices of Samer Habbas at (888) 848-5084. Our Orange County personal injury attorneys are dedicated to getting you the compensation that you deserve for the injuries that you have suffered.