New York is a big state and while you never plan to get hurt in an accident, things happen. If you've been injured and are involved in a personal injury case, you may have received a settlement after a lawsuit had been filed on your behalf. Luckily, a settlement was made and agreed to before ever going to trial, which occurs in the majority of personal injury cases.
If you are successful in obtaining a settlement, you might be concerned about taxation of your settlement payment. The good news is that compensation for your injuries is typically not taxed, although taxes may apply to some types of compensation.
We will go over which losses are considered taxable income in the article below.
Type of Damages & If They Are Taxable
In New York, an injury claim or lawsuit is filed to obtain compensation for the victim of the injury for different kinds of damages. These consist of economic damages, non-economic damages, and punitive damages.
ECONOMIC DAMAGES
Financial losses you incurred as a result of the accident and your injuries are known as economic damages. The following are typical economic damages:
- Medical costs: present and future
- Rehabilitation costs
- Medical devices
- Long-term care
- Medication
- Lost wages
- Reduced earning capacity
If there was a death, the victim's loved ones may be entitled to financial support for funeral and burial costs, potential future income losses, and other costs.
In New York, economic damages are not subject to taxes. The compensation received for this is considered reimbursement for the costs involved with treating your injuries rather than income.
NON-ECONOMIC DAMAGES
Non-economic damages are any non-financial losses you suffered as a result of the accident that led to your injuries. Non-economic damages, sometimes known as "general damages," are meant to make up for any physical or emotional pain and suffering you have gone through as a result of another person's negligence.
Given that they have no specific value, non-financial losses can be challenging to estimate. Determining a specific amount is done in various ways by the courts, insurance companies, and lawyers. However, that sum will be higher the more severe your injuries and suffering are. In New York, there is no cap on the total amount of non-economic damages that can be awarded.
Non-economic damages include:
- Emotional distress
- Physical pain
- Loss of enjoyment in life
- Anxiety or depression
- PTSD
- Disfigurement
- Permanent disability
In New York, non-economic damages are typically treated as reimbursement for your intangible losses rather than as taxable income.
Damages for pain and suffering, however, can sometimes be taxed. The monetary award can be taxed if the plaintiff is seeking compensation for non-financial losses they experienced and there is no accompanying physical injury. An example would be if you were not physically hurt but had your reputation damaged due to someone else's slander, your compensation may be taxed. Your non-financial damages must have resulted in a physical injury for them to be exempt from taxes.
PUNITIVE DAMAGES
Punitive damages are rarely granted since the burden of proof is substantially higher than it is for economic and non-economic damages. Punitive damages are used to "punish" the responsible party for negligent and intentional actions.
There is no limit on the amount of punitive damages you may be awarded in New York. However, punitive damages are taxed because they are not paid out to reimburse any of your losses. The goal of punitive damages is to ensure that the defendant is made aware that their actions were dangerous and to also discourage them and others from taking similar actions in the future.
Punitive damages are classified as income and are subject to IRS reporting requirements if you are granted them.
If you are unclear what compensation is taxable or not, your attorney can assist you.
Brandon J. Broderick Is Available To Help You With Your Settlement
Your claim and any lawsuits will be set up with your best interests in mind by an experienced NY personal injury attorney, such as those on the team at Brandon J. Broderick, Attorney at Law.
We value client service, compassion, and results. We are one of the area's top-rated personal injury law firms because of this.
We have offices in Florida, Connecticut, New Jersey, and New York. Contact us for a free consultation if you require assistance obtaining full and fair compensation for your injuries following an accident.