If you’re in the process of filing a personal injury lawsuit or have recently won your settlement, you may have a lot of questions about what you are and are not allowed to do with your earnings. You are taking on a new financial responsibility which comes with a lot of new territory to cover. For example, when April approaches, you will need to know how your settlement affects your tax returns. 

As a general rule, personal injury settlement compensation is nontaxable. However, there are circumstances when a part of your earnings will be taxed, such as:

  • If you have received tax benefits from your settlement in the previous year, you may not claim additional tax benefits for the current year. 
  • If you used your compensation to invest, or have earned interest from a savings account, the interest you earn is considered part of your income and taxable. 
  • If you received compensation from punitive damages (a monetary punishment for the defending party) that money is considered income and taxable.

You must be careful to report any of these income sources on your tax return. Punitive damages can be tricky because they are a part of your settlement amount and not separate when they’re in the bank. Your attorney will be able to help you differentiate between taxable and nontaxable income in your settlement. 

To learn more about settlement benefits and options, talk to Katherine Stone of the Injury Florida Law Firm. Katherine works one on one with clients to help them find solutions to their most tricky legal problems. You can contact Katherine at [email protected] or call the office today to schedule a consultation.