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Do you have to pay taxes on your Personal Injury recovery?

In any Personal Injury lawsuit, you will either have a settlement or a verdict. A settlement is an agreement between the parties to “settle” the case and avoid taking the case to court. A verdict is when a judge or a jury is presented with evidence and will decide the case. For example, how much money one party owes the other. But the question is, do you have to pay taxes on your settlement or verdict?

Taxes on your Personal Injury recovery

In general, any recovery from a personal injury lawsuit is not taxed, whether it’s the result of a verdict or a settlement. However, there are three different aspects of a personal injury settlement or a verdict that is taxed. They are three types of damages that are taxed in a personal injury settlement or a verdict:

(1) Compensation for emotional injuries

(2) punitive damages, and

(3) interest.

In a Personal Injury lawsuit, a plaintiff must be compensated for all his damages (past, present, and prospective), both special and general. This includes fair and adequate compensation for economic damages, such as medical expenses and lost earnings, and non-economic damages, such as pain and suffering.

A plaintiff’s noneconomic damages include damages for emotional distress suffered because of a physical injury. For example, a plaintiff is struck by a piece of metal when the engine blew on a defectively manufactured lawnmower. The metal part lodged in her spine at an inoperable location, significantly increasing her risk of future paralysis. The plaintiff here can recover damages for her physical injury and the emotional distress she suffered from her knowledge of the risk of paralysis.

Black’s Law Dictionary defines punitive damages as “the costs that are awarded to a person due to negligence that has caused ‘personal injury or damage to ‘personal property.” “It is a payment by the person to the ‘injured party’ as a’ punishment’ for reckless behavior.”. Punitive damages are generally not available for negligence cases. Nevertheless, if the defendant’s conduct was “wanton and willful,” reckless, or malicious, then under Texas law, a plaintiff is permitted to recover for punitive damages.

Finally, any interest that is owed on a verdict or a settlement is taxable. Thus, the three recoveries as mentioned above for damages are taxable. You should always make sure your settlement or verdict is clear about what compensation amounts are for what damages.

Taxes on your Personal Injury recovery

In conclusion, it is imperative for you to discuss your case with an attorney who will care for your case. You should always take the proactive approach of asking your attorney the type of damages you are recovering and talk to a financial specialist for taxable settlements and verdicts. At Houston Area Injury Lawyers, PLLC, our firm focuses on representing those who have suffered a personal injury through the entire recovery process – physical, emotional, and financial recovery from injuries. We help clients tip the balance of justice into their favor through our years of experience and expertise and our vigorous representation of injured clients. Our care and preparation are the keys to our success. The lawyers at Houston Area Injury Lawyers, PLLC, can help you navigate this issue and answer any questions that you may have. If you would like to speak to someone about your situation or for a free consultation, call our office at (713) 366-HURT (4878)—Tip the Balance in Your Favor.

* At Houston Area Injury Lawyers, PLLC, we pride ourselves on helping our clients recover fully – physically, emotionally, and financially. Our clients are our family. We stand ready to help your recovery from your injury. Contact us today.

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