If you’ve suffered a slip and fall injury in New York, you might be wondering whether your settlement will face taxes. It’s essential to understand how taxes apply to your compensation so you can plan your finances accordingly. In most cases, personal injury settlements, including those for slip and fall accidents, do not face taxation. However, some exceptions may apply.
General rule for personal injury settlements
Typically, personal injury settlements in New York are not subject to federal or state income taxes. If you receive compensation for medical expenses, pain and suffering, or lost wages due to a slip and fall accident, the IRS does not tax these amounts. The IRS considers these damages compensatory rather than income, so you won’t need to pay taxes on most of your settlement.
What part of a settlement could be taxable?
While the majority of your settlement is likely tax-free, certain parts may be taxable. For example, if your settlement includes compensation for lost wages, that portion will likely face taxation. The IRS treats lost wages as income, so you must report them and pay taxes on them. Similarly, if your settlement includes punitive damages, those may be taxable. Punitive damages serve to punish the defendant rather than compensate you, which makes them taxable.
How legal fees relate to taxes
Legal fees can also impact your taxes. Even though your settlement is non-taxable, you might still need to report and pay taxes on certain portions of it, especially if your attorney takes a percentage. If the settlement includes taxable amounts like lost wages or punitive damages, your attorney’s fees will come from those taxable portions. Discuss these matters with your attorney or a tax professional to avoid any confusion.
How to handle taxes from a slip and fall settlement
After receiving a slip and fall settlement, consult with a tax professional to help you navigate the tax process. They can help you determine which portions of your settlement are taxable and provide guidance on how to report everything accurately. Getting professional advice ensures that you won’t face any surprises come tax time.
In New York, personal injury law aims to support people who have been injured. However, you still need to stay aware of the potential tax implications, especially if your settlement includes lost wages or punitive damages.