After Securing A Baltimore Settlement, Do I Have To Pay Taxes?
If you are close to settling a Baltimore case, or if you have already received compensation for a Maryland injury, you may be wondering whether you are responsible for paying taxes on the settlement amount. The short answer is that it depends. All of the circumstances surrounding your settlement will need to be reviewed as the type of settlement will make a difference on if you owe taxes or not.
Talk to a Baltimore personal injury lawyer about the type of settlement that could be in reach for you, whether that is compensation for lost wages, reimbursement for medical expenses, damages for pain and suffering, or a combination of losses. Then, the tax treatment of your settlement can be reviewed.
Lost Wages and Medical Fee Reimbursement
If your settlement will compensate you for lost wages, it will likely be treated as income by the IRS. As a result, those funds will be subject to federal and state income tax. If you think about it, it makes sense, because lost wages would have been taxable if you had received them as income in the first place.
But if you are reimbursed for medical expenses, it may not be taxable. The IRS considers settlements or awards that are intended to compensate for personal injury or illness as tax-free, generally, but some exceptions are also in place. For example, if you have taken an itemized deduction for medical expenses in the past, and you are now being reimbursed through a settlement, it is possible you will need to pay taxes on that amount.
Whether pain and suffering damages are taxable also depends on prior tax deductions. Because generally, pain and suffering is non-taxable, but there can be tax implications if you deducted expenses and fees in prior tax filing years.
Consult with Experts Who Can Help
With personal injury law experts on your side, you can prepare for your future. A Baltimore personal injury lawyer can inform you of what settlement options are available and can share possible tax implications with you, such as lost income generally being subject to income tax while reimbursement for medical expenses and damages for emotional distress will probably be non-taxable or partially taxable.
And if your situation is more complex, your attorney can introduce to you tax professionals to make sure you are meeting all of the obligations you have to the IRS. Doing so will aid you in avoiding financial penalties. A tax professional can inform you of your tax obligations and help you identify any deductions or credits that may apply to your settlement should you be responsible for a tax payment. This could reduce your tax burden.
Are you wondering if you can achieve a settlement and, if so, what the tax implications of your Maryland settlement would be? You need experts to guide you through the compensation process, from an initial filing to securing a settlement and reviewing tax responsibilities. To learn more, speak to the lawyers at Iamele & Iamele, LLP. Schedule your fee-free consultation today, call 410-779-6160.