Legal Professional Answers: Are Personal Injury Settlements Taxable in Naples, FL?

Naples accident victims often feel sheer relief when they win a settlement. They’ve been waiting on this money to cover their lost wages, medical bills, and other necessities. However, that relief sometimes turns into disappointment when they realize they owe taxes on their settlement.

Are personal injury settlements taxable in Naples, Florida? In some cases, yes. The Law Offices of Marc L. Shapiro, P.A. explains below.

Non-Taxable Settlement Components

Some parts of a car accident settlement are not taxable. These include:

• Physical injury or illness damages
• Medical expenses (includes any accident-related medical expense, such as emergency care, follow-up doctor’s visits, physical therapy, medication, and surgery)
• Damages related to wrongful death claims
• Property damages (because the victim has already paid taxes on the property at the time of purchase)

Emotional distress damages are only non-taxable if they’re from a physical injury or illness. For example, if a victim develops severe anxiety after a car crash, their emotional distress damages would likely not be taxable.

Taxable Settlement Components

Are personal injury settlements taxable in Naples? Victims may need to pay taxes on certain portions of their settlement.

Emotional distress is one such component if the distress did not arise due to physical injury or illness. For instance, assume that a woman recovered emotional distress damages because her husband was injured in a truck accident. Because the woman didn’t incur a physical injury, she would owe taxes on those damages.

Lost wages and damages are usually taxable. This is because victims typically recover gross lost wages in personal injury lawsuits, not after-tax wages. The IRS treats lost wages compensation just as it would any other compensation the victim earned from work.

Punitive damages are always taxable. Punitive damages are those awarded to a victim due to a defendant’s egregious or malicious actions.

Pre-judgment interest is taxable as well. Pre-judgment interest is additional money based on interest that the judgment would have earned over a certain period of time.

Handling Taxable Settlements

During settlement negotiations, victims can work with a personal injury attorney in Naples to structure their settlement in a way that minimizes tax liabilities. After winning a settlement, victims must keep thorough records of all settlement-related documents. It’s also wise to consult an accountant who may be able to minimize settlement taxability.

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Further Settlement Information for Naples Accident Victims

The Law Offices of Marc L. Shapiro, P.A. is an award-winning firm with more than 30 years of experience. Naples victims who are still wondering, “Are personal injury settlements taxable?” can call (239) 500-5000 or contact us online for a consultation. The firm can also explain factors to consider before accepting a personal injury settlement.