Accident victims want to keep as much of their personal injury settlement for themselves as possible. A settlement check represents money you need for your expenses and future. The good news is that personal injury settlements are largely non-taxable, and you can keep practically all the money. The Sargent Law Firm Injury Lawyers can work to help you get the most money for your injuries. Contact our Idaho personal injury attorneys in Coeur d’Alene to begin your claim today.
Your Personal Injury Settlement Includes Economic and Non-Economic Damages
A personal injury settlement consists of several parts. One element of your settlement is to compensate you for expenses that you have incurred or will need to pay in the future. Mostly, these are medical bills. It makes obvious sense that you will need this money to pay for costs, and your reimbursement should not be taxable.
However, your personal injury settlement may also pay you back for money that you could have earned had you worked uninterrupted. You will also be compensated for your post-accident ordeal, both the physical and emotional discomfort that you have endured and will endure. These elements of your damages represent “new” money, and you may think that you will owe the federal and state government money for these payments.
Personal Injury Settlements Are Not Taxable Under Federal Law
The IRS does not include personal injury settlements as part of your taxable income. Under federal tax laws, you will need to pay taxes on money that is considered “income”. The IRS explicitly says that you must pay taxes on the money unless an exemption to the term “income” applies.
This topic is covered in the Internal Revenue Code. 26 USC §104 states that “gross income” does not include:
“the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.”
The IRS specifically says that money from a personal injury settlement is not taxable. As you can see, the same rule applies whether you received money awarded by a jury or from a settlement. Not only that, but even the lost wages portion of your personal injury settlement is not taxable.
You might think that you will need to pay tax on lost wages because it is money that you will have earned, but the IRS has given clear guidance on the topic that dates back for decades. A personal injury settlement will never include punitive damages, meaning the settlement will be entirely non-taxable.
The same rule applies in Idaho. Just like the federal government cannot tax your personal injury settlement, the State of Idaho also is not paid from the proceeds of your settlement.
The only time that any settlement can be taxed is when you have filed an employment-related lawsuit for emotional distress. The portion of your damages that relate to emotional distress are taxable.
How to Get the Most Money in Your Personal Injury Settlement
Since you do not need to pay taxes on a personal injury settlement, you can solely focus on how to maximize the amount of your settlement check. Although the insurance company will always act the same way, you have it within your power to get the money that you deserve for your injuries.
The strongest step that you can take to maximize your damages is to hire a personal injury lawyer to handle your case. Your attorney’s early contribution to your cause will be to put a number on your damages. You cannot effectively negotiate a settlement until you know how much your claim is worth. This way, the insurance company cannot catch you unaware of how much money you can get.
You Can and Should Reject Low Settlement Offers
The most important word in your lawyer’s vocabulary to help you get more money is “no.” The insurance company may make you a low settlement offer to test what you may be willing to accept. When you have suffered an injury by someone else’s actions, you have a legal right to be paid in full for your damages.
The insurance company does not get to control the amount of money you receive. They make offers, and you and your lawyer will decide together whether to accept one. You should only accept an offer that fairly compensates you for your injuries. It may take rejecting several settlement offers to get to a point where you can agree.
You may need to use the threat of a lawsuit or an actual lawsuit to maximize your settlement. The insurance company sometimes will respond to possible litigation because they will need to spend money to defend against a lawsuit. You may need to file a lawsuit, even though your case may settle without the need for a trial. The key is to hire an experienced attorney at the start of your case to help put you in the best legal position.
Contact an Idaho Personal Injury Attorney Today
The Sargent Law Firm Injury Lawyers serve Idaho to advocate and fight for injured victims. You should not delay in calling one of our attorneys because waiting can harm your ability to get financial compensation and the amount that you can receive. Schedule an initial consultation by reaching out to us online or call us today at 844-SARGENT. You do not need to pay us anything unless you win your case.
Personal Injury Settlement FAQs
Do I need to report my settlement on my income tax?
No. Since your settlement is not considered to be income, you do not even need to report it at all.
How can I get punitive damages in a personal injury case?
You can only be awarded punitive damages by a jury, and they are extremely rare.