Facts On Whether Lawsuit Settlements Are Taxable.
The people who are worried about whether a lawsuit settlement is taxable are those who have already won. Remember, if you are such an individual, you have with you a lot of cash, and you are happy about it. Paying tax to the government may be a result of an individual who wins the settlement case. The government will want to get some amount out of the much you have as no trial will be involved in settling a civil court case. Lawsuit settlements are usually categorized into two and individuals should be aware.
The first category of the lawsuit settlement will be known as a physical injury settlement. Individuals should be aware that the second category is the settlement that is as a result of a non-physical injury. Individuals who come across the two kinds of the lawsuit settlements should be aware that they are the categories.
Not only a broken bone will be considered as the physical injury, but also diseases such as cancer and flue. When we talk of a non-physical injury will be talking of cases such as defamation of character. We can define the defamation of character as an injury caused due to unquantifiable emotional distress.
Individuals should be aware that there is a kind of lawsuit category that will be considered as being either physical or non-physical. They should, however, be informed that the kind can be tacked as being alone in most case. Punitive damage is the kind of settlement that we are talking about in this case. A rule that is given by the judge in a way that the defendant will pay more cash than required is the punitive damages.
The reason for such case is so that the defendant can be punished. Tax will be required if you are having an increase in your income as a result of amount paid. In a case the damage is physical, then the tax will be excluded.
There will not be tax paid by an individual if the injury was a physical one. Examples of where such cases apply will be if there are lost wages that are being replaced or emotional distress.
Some of the instances where we can say that one has such settlements are defamation, slider, property damages among others. If you are considered as a winner in this case, then you will be required to pay taxes on the amount that you win. If you want to be assured on whether the kind of the lawsuit settlement is taxable, then you need to consult a lawyer.