A cash settlement does potentially contain taxable elements. It’s important to look at how some key factors relate to the finance aspect of your case—especially if you’re looking for tax relief.
While it’s not a simple yes or no answer, there are some basics to understand. For starters, punitive damages (that’s cash awarded to plaintiff as “punishment” for the defendant) are taxable.
On the other hand, compensatory damages (resulting from an injury) weren’t historically taxed—but changes to tax laws now dictate that compensatory damages must be linked to a physical injury in order to remain tax free. Compensatory damages related to emotional trauma may now qualify for taxation.
Want to understand those tax distinctions better? You should check this out: The Tax Ramifications of the Trump Tax Law on Personal Injury Settlements
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