You Just Won Your Personal Injury Lawsuit – Why Financial Planning Matters
Published on:August 6, 2014

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Anyone who has been injured severely enough in an accident has felt the effects on their body as well as their pocketbook. A Staten Island personal injury attorney works with his clients to ensure that they get the money they need to maintain their health after the injury. It’s up to you to manage the money that you receive. 

Taxes on Personal Injury Lawsuit Settlements

Federal regulations prohibit taxes on personal injury lawsuit settlements when it is awarded in the case of either a physical injury or physical illness. What this means is that any money awarded to you will not be taxed, even if the award amounts include compensation for lost wages or emotional or other trauma that resulted from the physical problem.

However, there are exceptions to this rule. If your case falls into one of the following categories, it is vital that you reserve funds to pay taxes. These exceptions are:

  • Punitive damages are taxable. Talk to your personal injury lawyer and ask him to divide the award into compensatory and punitive damages. That way you won’t have to pay taxes on the portion of the settlement awarded as compensation.
  • Settlements exclusively for emotional damages are taxable. Be sure to tell your Staten Island personal injury attorney of any physical damages. If you have been injured or sick, then you may not have to pay taxes.
  • Any accrued interest on the judgment amount will be considered taxable. Be sure to account for this amount when you file your tax return.

To reduce your taxes, you may need to file more than one injury claim: one for physical injury or illness and another for emotional damages.

Manage Your Money Over the Long Term

If you have experienced a severe injury that will lead to a need for long-term care or medication, make sure that you protect your settlement since you’ll need the funds for a long time. Once a case has been decided, you agree that you will seek no further damages.

Your personal injury lawyer should be able to help you manage your money or refer you to someone who can. At the conclusion of a successful lawsuit in Staten Island, you should have sufficient funds to ensure proper medical care. Going forward, you can:

  • Establish a separate savings or checking account for medical care.
  • Have a lawyer set up a trust fund.
  • Make arrangements with a financial institution.

A personal injury attorney will work with you before the case is brought to court to analyze how much money you need to pay your medical bills throughout your recovery. When injuries are not severe, you should take steps to immediately pay accrued expenses to keep your credit intact.