Are Lost Wages Taxable Income?
Are lost wages taxable income? Most of the time, the answer is yes. These wages are subject to income tax, social security tax, and Medicare tax. The IRS also notes that lost wages are not income that would have been earned through standard payroll practices. In these cases, lost wages are considered compensation for the harm caused by the employment dispute. However, there are several important considerations to make when calculating whether lost wages are taxable income. car accident lawyers houston
The first consideration is whether or not the amount of compensation you receive for physical injury is taxable. While medical bills, property damage, and hospital stays are deductible, reimbursements for attorney fees, which are typically included in the award, are taxable income. If you receive a lump sum award, you should be aware that the IRS can tax you on 100% of the amount. Hence, you should consider filing a claim for personal injury compensation when you lose wages.
While a check for property damage is unlikely to be taxable, a check for lost wages awarded as part of a personal physical injury case is not. The RRTA states that lost wages in personal injury cases are not taxable income. For these reasons, lost wages awarded to injured railroad workers are not taxed. As long as your employer pays the wages, they will not have to pay income tax on the amount of compensation.
There are exceptions to this rule, however. Medical expenses are taxable only if you use the reimbursement for prior-year medical bills. However, it is worth noting that emotional distress is not considered physical injury. This means that a compensation awarded for medical care is not taxable if it's part of a wrongful death case. The amount you receive may also be taxed depending on the circumstances and the compensation for emotional distress.
The Eighth Circuit relying on the language of the statute to determine if "time lost" is taxable compensation was misinterpreted. Congress deleted the term "lost wages" in 1975 and 1983 in order to make compensation taxable only when paid. Furthermore, these statutes were not meant to apply to lost wages. The Eighth Circuit stated that Congress's intention was to make compensation taxable at the time it is paid.
In addition to the above two types of compensation, an injury or loss-of-wage lawsuit will also have several different types of damage claims. Some of these compensations are taxable, such as lost wages, wrongful termination, and severance pay. Compensation for wrongful termination is also taxable as income, although the amount can be offset by the underlying loss of earnings. Finally, a compensation for a negligent builder's negligence is usually treated as a reduction in the purchase price.