When is the amount awarded as compensatory damages taxable? The answer to this question largely depends on the nature of the injury. Some bodily injuries are physical, while others are emotional. In determining taxability, the original purpose of the lawsuit is considered. A personal injury attorney can answer your specific question and provide you with the best possible guidance. Listed below are several examples of compensatory damages and their taxability. If you have questions about the taxability of your damages, contact an experienced lawyer today.
Compensation damages are designed to make the injured person whole. These damages may cover the cost of medical care, lost wages, emotional distress, and pain and suffering. These are not taxed by the Internal Revenue Service or New York State law. Physical injury is self-explanatory, while physical illness is when negligence has caused a person to contract an illness. In Georgia, a jury's verdict must take all parties' fault into account.
To determine if an award for emotional distress is taxable, the IRS considers the original purpose of the claim. If the plaintiff has a previous medical record, emotional distress is usually treated as a personal injury and must be taxed. However, if the plaintiff has been diagnosed with a mental disorder that is causing his or her pain and suffering, he or she will have to pay taxes on that benefit.
If the compensation you receive for emotional distress and mental anguish is awarded in New York, you may need to report the money as income. However, if the amount is large enough, the company should be able to deduct medical expenses that it incurred in connection with your emotional suffering and mental anguish. Also, you may want to include any previous deductions for emotional distress or mental anguish in your accounting.
In Louisiana, a portion of the money awarded for compensatory damages is taxable, but the rest of the amount is non-taxable. However, if the amount of the compensation exceeds the value of your losses, the IRS will consider the award as taxable income. In addition, medical bills for wrongful death can be deducted from income. However, Louisiana law does not limit the distribution of wrongful death settlements.
The income tax treatment of compensatory damages varies from state to state. If the compensation was awarded because of physical injury or illness, the money will not be taxable. Punitive damages are, however, treated differently. If the victim received punitive damages in an injury, the amount awarded as compensatory damages is taxable to the plaintiff. There are also some exceptions. For example, punitive damages may be taxable only if the defendant was negligent.
As with most cases, compensatory damages are determined by the facts provided in the lawsuit. The award can include economic and non-economic losses. Often, this money goes toward paying the plaintiff's attorney's fees and medical expenses. Compensation for injuries, in other words, is intended to compensate the injured person for their losses. Once awarded, compensation for lost wages and other expenses is tax-free, and taxable only if the victim received a monetary award for pain and suffering.