A personal injury settlement contains many types of recoverable damages, typically in a lump sum amount. Some of the compensation you receive from the settlement is intended to reimburse you for out-of-pocket expenses—these are not taxable. Other portions of your settlement may be taxable. These can include any loss of wages you recoup. It may also include punitive damages, although these are rarely awarded in personal injury cases.
On your own, it can be hard to understand when you do and do not have to pay taxes on my personal injury settlement in Georgia. Getting it wrong can also have costly consequences. A Georgia personal injury lawyer will support you at every phase of your case. They may also recommend economists, tax preparers, and other financial experts to help you understand the tax implications of your settlement.
What Type of Compensation Is Included in a Georgia Personal Injury Settlement?
When you recover damages in a personal injury settlement, it is made up of various types of compensatory damages. Your legal team will assess the value of each individual category of recoverable damages, which can include:
- Medical bills, including emergency room fees, hospital admissions, medication, therapy, rehabilitation, assistive medical devices, and in-home medical support.
- Loss of income, including full- and part-time wages, business and profit loss, freelance and gig economy income, and loss of future earning capacity.
- Property damage, including restoring your property to its pre-accident condition, recovering its diminished value, or replacing property deemed a total loss.
- Physical and emotional pain and suffering, including compensation for disabling and disfiguring injuries, and loss of enjoyment of life.
- Wrongful death damages, where applicable, including funeral and burial costs, loss of financial and familial support, and loss of consortium and companionship.
Your lawyer will examine the financial consequences of your injury and related financial expenses and losses. They will also request accurate and appropriate compensation on your behalf. They will also explain how your lump sum settlement breaks down into separate components and which of these could be taxable.
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What Portion of a Personal Injury Settlement in Georgia WILL NOT Be Taxed?
Filing and paying taxes on traditional income is complicated. Understanding how a settlement might be taxed can be even more complicated and stressful. Internal Revenue Administration (IRS) guidelines determine which portions of your settlement are safe from taxes. In most cases, this will include the following:
- Any portion of your settlement that covers personal physical injuries or physical sickness that were not part of a previously itemized medical expenses deduction
- Any portion of your settlement that covers mental anguish and emotional distress attributed to physical injury or sickness
- Any portion of your settlement intended for the loss in value of your property
Wrongful death damages, a type of personal injury case, are typically not taxed, though exceptions can apply. Taxes for a personal injury settlement are a complicated legal matter. You do not have to navigate its complexities on your own. The best way to understand your rights and responsibilities is to let a local attorney clarify it for you.
What Portion of a Personal Injury Settlement in Georgia COULD Be Taxed?
Some portions of your personal injury settlement might be subject to taxes, according to IRS guidelines. These portions must be reported as income—usually as other income—and taxed accordingly. This generally includes the following:
- Medical expenses you deducted in previous years
- Mental and emotional distress settlement resulting from anything other than physical injury or sickness
- Any portion of your settlement that replaces lost wages, severance pay, or back pay
- Any interest income collected on your settlement amount
- Any punitive damages included in your settlement amount
Understanding and meeting your potential tax liability is important since underpaying taxes—or not paying them at all—could expose you to hefty penalties and fees. Your personal injury law firm can help with this portion of your case.
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How Can a Personal Injury Lawyer Help With Personal Injury Settlement Taxes?
A personal injury attorney serving Georgia can help you understand the actual value of your settlement, including any portion that might be taxable. In addition to fighting for the best possible overall value of your case, they can also review how each type of damage is categorized.
Your lawyer can help you understand and comply with your tax obligations. Typically, the state of Georgia follows the IRS guidelines for taxing personal injury and wrongful death settlements. It can be worth hiring an attorney to protect your rights and best interest. They can provide clarity on both federal and state-level taxes.
Are There Any Other Benefits to Hiring a Personal Injury Lawyer in Georgia?
Guidance through the tax implications of a personal injury settlement is only one of the reasons why you should hire a personal injury lawyer. The benefits of hiring a lawyer versus handling your personal injury case on your own include:
- Familiarity with personal injury cases and laws
- The pool of resources they bring to your case
- Collecting, organizing, and submitting evidence
- Handling all insurance and court forms and filings
- Clarifying legal and insurance language and jargon
- Explaining required notification and filing deadlines, per O.C.G.A § 9-3-33
Preparing and resolving your case will require multiple forms of communication with multiple parties. So can the aftermath of reaching a settlement agreement. A lawyer can also handle all the communication your case will require, including verbal, written, and electronic correspondence.
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Get Help Understanding Taxes on Your Personal Injury Settlement in Georgia
If you or someone you love received a settlement for a negligence-based accident, you may have to pay taxes on a portion of your personal injury settlement in Georgia. When our law firm handles your case, we help you pursue a settlement and understand any possible tax obligation.
You do not have to navigate any portion of the financial recovery process without legal guidance and support. Learn more about how hard we work for our injured clients by contacting our case evaluation team at Kaine Law today.