Dealing with the aftermath of a personal injury can feel like a lot to handle, especially when you’re worried about finances and taxes. One question that often comes up is, “Are personal injury settlements in New York?” Here’s what you need to know.
Are Personal Injury Settlements Taxable in New York?
The short answer is no. Generally, personal injury settlements aren’t taxable income under federal law, and New York follows similar guidelines. However, the specifics can get complicated based on the nature of the damages awarded.
Compensatory Damages
Compensatory damages are designed to make the injured party “whole” again. They typically cover:
- Medical Expenses: Costs for treating injuries.
- Lost Wages: Income lost because you couldn’t work.
- Pain and Suffering: Compensation for physical and emotional distress.
Most of the time, these damages aren’t taxable because they serve as reimbursements for losses rather than income.
On the other hand, punitive damages, which are awarded to punish the defendant rather than compensate the victim, are taxable in New York. If your settlement includes punitive damages, you must report that portion as income on your state tax return.
Tax-Free Settlements
In New York, if your settlement is mainly for physical injuries or illnesses, it’s usually tax-exempt; this means if you were hurt in an accident and received compensation for your medical bills and pain, you probably won’t owe taxes on that amount.
Are There Exceptions? When Is a Personal Injury Settlement Taxable in New York?
While most personal injury settlements are tax-free, some exceptions can lead to tax liabilities.
1. Emotional Distress Without Physical Injury
If you receive compensation for emotional distress without a related physical injury, that portion of your settlement may be taxable. For example, the IRS would likely consider that taxable income if your claim was solely based on emotional pain from a defamatory statement.
2. Lost Wages and Employment-Related Claims
Compensation for lost wages typically isn’t taxable if it’s part of a personal injury claim. However, they’re taxable if your claim is related to employment issues like wrongful termination or discrimination because those wages would’ve been taxed if you had earned them.
3. Interest on Settlements
If your settlement includes interest that has accrued from the time of your injury until you receive payment, that interest is taxable, and you’ll need to include it as income when filing your taxes.
4. Previously Deducted Medical Expenses
If you previously deducted medical expenses from your taxes and later received a settlement that reimbursed those expenses, you must report that amount as income because you got a tax benefit from those deductions.
Are Personal Injury Settlements Taxable in New York?
The short answer is no. Generally, personal injury settlements aren’t taxable income under federal law, and New York follows similar guidelines. However, the specifics can get complicated based on the nature of the damages awarded.
Compensatory Damages
Compensatory damages are designed to make the injured party “whole” again. They typically cover:
- Medical Expenses: Costs for treating injuries.
- Lost Wages: Income lost because you couldn’t work.
- Pain and Suffering: Compensation for physical and emotional distress.
Most of the time, these damages aren’t taxable because they serve as reimbursements for losses rather than income.
On the other hand, punitive damages, which are awarded to punish the defendant rather than compensate the victim, are taxable in New York. If your settlement includes punitive damages, you must report that portion as income on your state tax return.
Tax-Free Settlements
In New York, if your settlement is mainly for physical injuries or illnesses, it’s usually tax-exempt; this means if you were hurt in an accident and received compensation for your medical bills and pain, you probably won’t owe taxes on that amount.
Are There Exceptions? When Is a Personal Injury Settlement Taxable in New York?
While most personal injury settlements are tax-free, some exceptions can lead to tax liabilities.
1. Emotional Distress Without Physical Injury
If you receive compensation for emotional distress without a related physical injury, that portion of your settlement may be taxable. For example, the IRS would likely consider that taxable income if your claim was solely based on emotional pain from a defamatory statement.
2. Lost Wages and Employment-Related Claims
Compensation for lost wages typically isn’t taxable if it’s part of a personal injury claim. However, they’re taxable if your claim is related to employment issues like wrongful termination or discrimination because those wages would’ve been taxed if you had earned them.
3. Interest on Settlements
If your settlement includes interest that has accrued from the time of your injury until you receive payment, that interest is taxable, and you’ll need to include it as income when filing your taxes.
4. Previously Deducted Medical Expenses
If you previously deducted medical expenses from your taxes and later received a settlement that reimbursed those expenses, you must report that amount as income because you got a tax benefit from those deductions.
Have Questions? Contact Our New York City Personal Injury Firm Today!
If you’re unsure whether your settlement will be taxable or how to structure it for the best outcome, it’s important to talk to an experienced attorney.
At Field Law Group, we’re here to help you understand your rights and options. We offer FREE, no-obligation consultations to discuss your case and answer any questions you may have.
Call 212-739-7278 or contact us today to get started!
Have Questions? Contact Our New York City Personal Injury Firm Today!
If you’re unsure whether your settlement will be taxable or how to structure it for the best outcome, it’s important to talk to an experienced attorney.
At Field Law Group, we’re here to help you understand your rights and options. We offer FREE, no-obligation consultations to discuss your case and answer any questions you may have.
Call 212-739-7278 or contact us today to get started!
Field Law Group, P.C.
17 State Street, 40th Floor
New York, New York 10004
This website contains attorney advertising. Prior results do not guarantee a similar outcome, see Disclaimer.
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Field Law Group, P.C.
17 State Street, 40th Floor
New York, New York 10004
This website contains attorney advertising. Prior results do not guarantee a similar outcome, see Disclaimer.
Designed by PostcardMania
Field Law Group, P.C.
17 State Street, 40th Floor
New York, New York 10004
This website contains attorney advertising. Prior results do not guarantee a similar outcome, see Disclaimer.
Designed by PostcardMania