THE MCMILLIAN LAW FIRM - PASSIONATELY REPRESENTING CAR ACCIDENT VICTIMS IN CHARLESTON,SC AND SUMMERVILLE, SC
OK . . . You made it! You were involved in a car accident that was due to the negligence of someone else. You were injured, the car was totaled, you missed two weeks of work, and you have a nagging pain that you can't get rid of. You did the right thing - You hired a lawyer. Your attorney was able to take the pressure of dealing with the insurance company off of your back. Your attorney settled the case for more than you expected and you are happy with the results considering how this whole unfortunate ordeal started. The settlement comes in, your attorney presents you the check, and all is good . . . UNTIL TAX TIME!! The most demoralizing thing to have to deal with following a favorable personal injury settlement is a tax bill from the IRS. Many car accident settlements carry some form of tax implications for the injured client. It is important that clients are aware for any tax complications that arise from the settlement. It is possible to structure settlements to ensure that settlement recipients are not hit with a tax liability. If you have been injured in a car accident due to the negligence of someone else, contact Jay McMillian at The McMillian Law Firm as soon as possible. Jay can help you navigate the entire claims process and can help you make sure that you are prepared for any issue that you could face after settlement, including taxes.
WHAT IS TAXABLE IN YOUR PERSONAL INJURY SETTLEMENT?
The general goal of any personal injury settlement is to place the victim into a position that they would have been in had no accident ever occurred. Though doing this, to the penny, is a practical impossibility, the theory of awarding "compensatory damages" works in concert with the tax enforcement policies of the IRS. The possibility of paying taxes on a personal injury settlement works in a manner that is consistent with the general purpose of making an accident victim "whole." As a result, some forms or parts of a personal injury settlement are taxable, whereas other parts and types of personal injury settlements are not taxable. Upon receipt of a personal injury settlement offer, your attorney will need to break down your compensation into its component parts (medical, pain and suffering, lost income, punitive). By doing this, your attorney will be able to determine your approximate tax liability. A car accident victim must be aware of how taxes are applied to each of the following four categories of damages in a personal injury settlement.
DO I HAVE TO PAY TAXES ON THE MEDICAL EXPENSES PORTION OF MY PERSONAL INJURY SETTLEMENT?
It is generally understood that any personal injury compensation attributed to medical expenses will not be taxed. This is true for any compensation related to medical bills, prescriptions, treatments, and future therapies. The theory behind this tax exemption is that if you were not the victim of the accident, you would have never had sustained any medical costs. Therefore, any monies received to cover for medical expenses is not in theory any "excess income" that has been earned. These are funds designed to offset expenses, expenses that were brought about by someone else's negligence and therefore should be tax exempt. This issue seems straightforward and this general rule concerning taxation and medical expenses will apply to the vast majority of personal injury claims.
DO I HAVE TO PAY TAXES ON THE "PAIN AND SUFFERING" PORTION OF MY PERSONAL INJURY SETTLEMENT?
Tax issues concerning pain and suffering compensation can be particularly complex. South Carolina law explicitly states that any compensation paid specifically to compensate for "physical injury" is not subject to taxes. However, the question becomes cloudy when one tries to differentiate between damages paid for "physical injury" and damages paid for "pain and suffering." Every accident victim that experienced serious pain and suffering as a result of an accident needs to be represented by a skillful attorney throughout the entire injury claims process. Insurance companies make it notoriously difficult for victims to recover fair compensation for "pain and suffering" without the assistance of an attorney. Please call The McMillian Law Firm so that not only are your claims to "pain and suffering" compensated but so you also are prepared to avoid any serious tax liability.
DO I HAVE TO PAY TAXES ON THE LOST INCOME PORTION OF MY PERSON INJURY SETTLEMENT?
Unlike the settlement proceeds dedicated to medical bills and treatment, your settlement collection for any lost income will most likely be subject to taxation. The premise behind this is quite simple - you are being compensated and made whole for lost income that, absent the injury, would have been subject to income tax if it were earned at your job.These funds would have been taxed had you never been involved in the accident, therefore, your replacement income settlement will be taxed. These proceeds will be taxed at your ordinary tax bracket rate. It is important to note, however, that if you receive compensation for lost wages in the form of a large lump sum, this may push you into a higher tax bracket and thus more taxes would be owed. Now as your attorney, one thing that I always do to offset the tax liability is to of course seek a higher payout on the settlement! An experienced and skillful attorney will always anticipate this and seek to maximize the claim so that taxes are addressed in a alternative manner.
DO I HAVE TO PAY TAXES ON MY PUNITIVE DAMAGES AWARD?
In a limited number of Charleston auto accident cases, victims may be entitled to punitive damages. Punitive damages are designed to "punish" the wrongdoer - i.e. they punish the defendant for acts to go beyond mere negligence to reckless, willful, and wanton acts (gross negligence). Unlike damages described above, these damages are not compensatory. They are meant to punish and not part of the formula to calculate what actually makes you whole financially. This means that they are not based off of the victim's actual money damages. While they are only awarded in a small number of cases, they are often awarded in cases involving drunk driving accident victims or other reckless acts. Since punitive damages are not compensatory, they will always taxed. Therefore if you are the victim of an accident that will likely involve a claim for punitive damages, then be aware of any potential tax liability that will come with a punitive damage award.
THE MCMILLIAN LAW FIRM - YOUR CHARLESTON, SC AND SUMMERVILLE, SC CAR PERSONAL INJURY ATTORNEY
As a Personal Injury lawyer in my solo practice, I will take all necessary steps to protect your rights and work to secure compensation for your injuries as a victim of a car accident. Being a small firm allows you to have direct access to your lawyer during this entire process, with open lines of communication as we work together towards a viable solution to your specific case.
Being an experienced personal injury attorney, I have experience dealing with insurance companies. I also know where the courthouse is and will not be afraid to call the insurance company to the mat in front of a judge and jury if necessary.
If you or a loved one has been injured in a car accident in Charleston, Summerville, Mount Pleasant, James Island, West Ashley, Goose Creek, Moncks Corner, North Charleston, or any of the other fine communities of the Low Country, and need to meet with an experienced car accident lawyer, please contact me to set up your free case evaluation today. Let me help prevent you from being taken advantage of by the insurance company. I am serious and I am here for you! Contact The McMillian Law Firm today @ 843-900-1306