When you settle your premises liability claim, it is important to understand whether you will owe taxes on your proceeds so that you do not get into trouble with the Internal Revenue Service (IRS). Unfortunately, it can be complicated to figure this out because some parts of your settlement may be taxable, while others are not. Here is what you need to know so you can plan ahead for any taxes you may owe.
Compensatory Damages That Are Not Taxed in Premises Liability Cases
In general, settlements in personal injury cases for injuries suffered by the victim are not taxable. You will not owe taxes on the portion of the compensation you receive that is to pay you for the physical injuries you suffered in the premises liability accident. The following amounts would be tax-free:
- Past and future medical expenses
- Property repairs or replacement
- Pain, suffering, and emotional distress related to your physical injuries
- Wrongful death damages
- Legal fees
Compensation That Could Be Taxable in Your Settlement
There are some types of damages awarded in premises liability cases that could be taxable. They include:
- Interest. If you are awarded interest on your settlement amount, the interest would be taxable income.
- Lost wages. You are entitled to recover your lost wages and lost earning capacity if you must make a career change or are unable to work due to your injuries. The IRS considers these types of damages as income and would require you to pay taxes on them.
- Punitive damages. Punitive damages are awarded to punish the negligent party when their actions were grossly negligent. They are rarely awarded in premises liability cases. However, if you receive them, you should expect to pay taxes on this portion of your settlement.
- Pain and suffering with no injuries. Although damages for pain, suffering, and emotional distress are generally not taxed, they are taxable if you did not suffer any physical injuries.
Were you or a family member injured in a premises liability accident in the Virginia Beach or Norfolk area? Our experienced premises liability lawyers are dedicated to helping you recover all the compensation you are entitled to in your settlement with the negligent property or business owner’s insurance company. To learn more about how we can assist you, call our Norfolk office to schedule your free consultation today.