Due to the nature of an accident settlement, there is no one answer to the question that concerns the possible taxing of money received after a case has been settled. Such a settlement represents compensation for a number of different losses.
Some losses compensated by payment of compensatory damages.
Money received for compensatory damages cannot be taxed. That includes reimbursement for medical expenses or rehabilitation expenses. That would include the costs of medication, medical supplies and other necessary health-giving equipment.
The government does not tax such payments, because those are supposed to help the victim get back to his or her former economic situation. In other words, the law does not view the accepting of compensatory damages as a means for profiting from what has taken place.
Reimbursement for lost wages gets treated differently.
At the time of the accident, the victim had not received any anticipated salary. For that reason, payment for lost wages, does not serve as money that gets used to help the victim return to his or her former economic position. Instead, it gets added to all the money the same victim has earned in the past.
True, the payment of lost wages does come into the victim’s hands later than expected. The government does not offer any interest for that limited delay. The government does offer interest for any delay that might be caused by an appeal from the opposing party. Such an appeal can delay the time when an awarded compensation gets comes into the hands of a waiting victim with an accident injury.
Money received as compensation for lost wages can be taxed. It gets taxed at the rate that is normally used on all income. Incidentally, the interest that a victim might earn when a payment gets delayed by an opponent’s appeal can also be taxed. It supplements the money that got used to aid the victim’s effort to return to his or her former economic situation. It increases the size of the compensation that gets delivered to the filer of the personal injury claim.
Other damage awards that can have the government asking for tax money
Those are what fall under the classification of punitive damages. Not everyone that files a personal injury claim will elect to go after punitive damages. Plaintiffs normally seek such damages with the help of Personal Injury Lawyer in Burlington when a defendant’s behavior has been especially egregious or out-of-bounds.
The law allows victims to request such damage awards, because the defendant that must pay the award receives a reminder, regarding the need to avoid such behavior in the future. The government supports the law, and benefits from it. The government deserves the right to put a tax on money received for punitive damages.