Orlando accident attorneys are assessing the impact of new tax laws on personal injury settlements. A new story in Forbes describes changes that can affect the amount of taxes on money that accident victims receive from lawsuits.
“The injuries might be from an auto accident, slip and fall, medical malpractice, industrial accident, or drug or medical device case,” Forbes writes. “If the plaintiff suffers physical injuries or physical sickness, compensatory damages should be tax-free.”
Compensatory damages means recovering losses incurred because of an accident. Personal injury attorneys typically work to recover medical bills and expenses, and money lost from missing work or other lost income. Of course, this compensation from a personal injury lawsuit applies to physical injuries caused by negligence. And it is tax-free. However, punitive damages are taxable, as are damages for emotional distress.
Trump Tax Law Hurts Personal Injury Suit Settlements via @forbes https://t.co/TrWzZuT553
— The National Trial Lawyers (@TheNTLtop100) August 8, 2018
Personal Injury Attorneys and Injury Accident Settlements
Perhaps the most impactful change for clients of personal injury attorneys is the deduction for legal fees in non-compensatory settlements. Most accident injury lawyers work on a contingency fee. The client generally pays the lawyer a percentage of the settlement. (There is no fee unless the accident injury victim wins the personal injury lawsuit.) Again, if the settlement is entirely to recover damages for physical injuries and compensation for money lost, there is no change.
But if your damage award is for emotional distress or punitive damages, your lawyer’s fee is no longer deductible. So if you are awarded a $100,000 settlement for these types of damages, the entire amount is taxable income — even though the lawyer is getting $40,000. It’s pretty complicated, so it’s always advisable to speak with a tax professional about your legal settlement.
Accidents and injuries can be devastating. If you have questions about recovering losses caused by someone’s negligence, consider the Orlando personal injury attorneys at Martinez Manglardi, PA. We’ve been helping Florida accident victims for more than 30 years. Call 407-846-2240 for a free consultation. Offices throughout Central Florida.