If you have been seriously injured in a car accident, the goods are you are facing a significant financial burden as the medical bills start to pile up. If you are too hurt to return to your, you may be facing overwhelming financial strain. As such, you may negotiate a settlement with the at-fault driver or their insurance company to ease this stress. However, before accepting a settlement amount, it’s crucial to consider that your settlement could be subject to taxation. While personal injury claims are typically not taxable by the state or federal government, certain forms of compensation may be taxable depending on the unique circumstances of your case. Please continue reading to learn if car accident settlements are taxable in New Jersey and how a skilled Morris County Car Accident Attorney can effectively represent your interests.
Are Personal Injury Settlements Taxable in New Jersey?
Under state and federal law, compensatory damages are not taxable. They are meant to restore victims, providing monetary compensation for out-of-pocket expenses like medical bills or subjective losses like pain and suffering. If your settlement compensates for losses such as medical expenses, hospitalization costs, and the pain and suffering resulting from your physical injuries, it will not be taxed as income. Understanding the taxation exemption on personal injury settlements is essential, as it applies to compensation for bodily injuries or physical sickness.
Are There Exceptions to the Rule?
Although compensatory damages are generally not taxable, they are not the only compensation available in personal injury claims. Depending on the circumstances of the case, punitive damages may be available. Unlike compensatory damages, punitive damages are subject to income tax. Punitive damages are not awarded to reimburse victims for their losses. Instead, they’re awarded to punish the defendant for their egregious conduct and to reform or deter the defendant and others from engaging in similar conduct.
There is another exception where your settlement or trial judgment may be taxable. If the defendant does not pay immediately, interest will accrue over time. The interest in a judgment could become substantial. This interest, if eventually paid, is taxable under state law. It’s important to note that this applies even to interest awarded for compensatory damages. Essentially, if your settlement includes interest, such as interest accrued on the settlement amount between the time the claim was filed and when the settlement was paid, this portion is taxable.
At Lutz Injury Law, we are prepared to help you structure your award to avoid unnecessary tax bills. To learn more about the tax implications of a personal injury settlement, please don’t hesitate to contact our dedicated legal team today.