Are legal settlements and awards taxable?
Are legal settlements and awards taxable? Do I have to pay taxes on personal injury awards, workers compensation benefits or social security disability benefits?
This is a question we get all the time. The answer depends on the kind of case you have.
Is my personal injury award taxable?
The short answer is no. If you win a personal injury case, either through settlement or verdict, the money you receive to compensate you for your losses is not taxable. To get a little more technical, if punitive awards are given, for gross misconduct on behalf of the defendant, then those punitive awards are taxable. Interest on a judgment is also taxable but that only occurs in situations where your award should have been paid at some earlier time and was delayed.
Are my workers’ compensation benefits taxable?
No. Your workers’ compensation benefits are not taxable and do not have to be claimed on your year-end taxes. There is no paperwork that is sent you.
Is my social security disability benefit taxable?
It depends. Many people who receive social security disability benefits do not end up paying taxes on them because they don’t make enough income from other sources to meet the tax threshold. But if you do have other sources of household income, such as a spouse who earns income, you may have to pay tax on your benefits. To determine if your particular situation requires you to pay tax on your social security benefits you should contact a tax professional.
If you are concerned and would like to discuss further if legal settlements and awards are taxable in NY, please contact us at Segar Law.