Taxes on Lawsuit Settlements and Awards in Utah

Do you anticipate receiving a lawsuit settlement in the near future? You may be making financial plans if so. When considering how you’ll use and save your money, you might have questions about tax on lawsuit settlements in Utah.

Most of your lawsuit settlement in Utah should be tax-free. However, portions of an award might be taxed in certain circumstances.

Compensation Available in Utah Personal Injury Cases

The compensation you could receive for a successful accident claim can cover:

• Economic losses – These are the losses that have a specific dollar value, such as medical bills, property damage, and lost income.
• Non-economic losses – These losses are more subjective in nature, covering pain and suffering, diminished quality of life, and the like.

What Type of Compensation is Taxable in Utah?

According to the U.S. tax law, damages received for “personal injuries or sickness” do not count as part of someone’s gross income. That means these damages are not taxable – even the portions that account for lost wages.

Under certain circumstances, if you take your case to trial rather than settling it out of court, you could recover punitive damages. These damages don’t compensate a plaintiff for specific losses. Instead, they punish the defendant for particularly egregious behavior. Because punitive damages don’t serve to make an injured party whole, they are taxable.

The Importance of Checking Publication 525

The IRS offers Publication 525 to provide taxpayers with more information about what types of income are taxable and what are not. Consider referencing it when filing your tax return after receiving a lawsuit settlement. It may provide more detailed information about what parts of your settlement are and aren’t subject to taxes.

Discuss the topic with a CPA for more information. Although the information here is valuable, a single blog entry isn’t a substitute for professional tax advice.

What About Non-Economic Damages?

You may wonder whether you need to list compensation for non-economic losses like pain and suffering on your tax return. Because these losses don’t have strict dollar values like economic losses, you might assume the rules for them are different.

That’s not the case. The IRS considers compensation for non-economic losses to still be compensation that’s meant to make you whole after a negligent party injures you. You do not need to pay taxes on compensation for non-economic losses.

Additional Tips for Planning How to Use a Lawsuit Settlement

As you learn about tax on lawsuit settlements, it’s also wise to learn about how you may prepare for a financial windfall in general. Here are some tips to keep in mind:

• Understand what your attorney receives – You may have pursued compensation with the assistance of a personal injury attorney. Rather than charge upfront fees for their legal services, most personal injury lawyers charge contingency fees. A contingency fee is a percentage of the compensation a lawyer secures for their client. Understanding your attorney’s fee can help you better prepare for a settlement.
• Don’t assume you will receive a specific sum – A lawyer can apply their experience and training to help you pursue the total amount of compensation for which you may be eligible. However, it’s unethical for an attorney to guarantee an exact payout. Don’t make any financial plans that rely on you receiving an exact sum in the form of a lawsuit settlement.
• Speak with doctors – Some doctors and medical care providers are willing to wait until a patient receives a settlement to bill for their services. Ask your doctors (ideally through your attorney) if they’d be willing to wait until you receive a settlement to charge you for treatment.
• Consult a professional – Along with helping you learn more about tax on lawsuit settlements, consulting with a financial professional can help you better determine how you may save or invest your settlement.

Always consider what specific losses your settlement is compensating you for. Doing so is key to spending and saving your settlement money wisely.

Contact a Utah Personal Injury Attorney

Pursuing the money for which you’re eligible may be easier with the assistance of a Utah personal injury lawyer. You can more easily focus on your health and recovery when a member of the team at London Harker Injury Law handles your case. Learn more about what we can do for you by contacting us online or calling us at 77CARCRASH for a free case review.

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