An injury can affect not only your standard of living and earning capacity, but also your tax status. You get injured, you prove the other party’s fault, and you get a personal injury settlement. The process seems very simple and straightforward, yet most people do not realize what really goes into the process of recovering damages in a personal injury claim.
What many people forget about is that receiving any settlement or having a verdict awarded in your favor will affect your tax status to one degree or another. Since people rarely consider what kind of impact a personal injury claim has on their taxes, we brought our Miami personal injury attorney from the Dante Law Firm, P.A., to help you understand tax codes and Florida laws on that matter.
It does not make it easier to understand how a settlement may affect your taxes given that federal and state laws are constantly evolving. Here’s how it works. For this tax year in 2018, federal laws allow you to deduct the entire value of your medical expenses incurred as a result of an injury from your tax return, but only as long as the total cost of your medical bills exceed 7.5 percent of your adjusted gross income.
Our experienced personal injury attorney in Miami explains that your adjusted gross income is calculated as follows: your total income minus any deductions, contributions, and student loan interest taken before taxes. For example, let’s imagine that you sustained a minor injury in a Miami car accident, and your medical treatment cost you $5,000. Your adjusted gross income, meanwhile, is $45,000. In that case, you could claim the entire $5,000 on your tax return because the medical expenses is 9 percent of your adjusted gross income (exceeding the 7.5 percent threshold).
But the 7.5 percent requirement will change beginning next tax year in 2019. For the 2019 tax year, you will be able to deduct the un-reimbursed amount of your medical treatment after an injury if it exceeds ten percent of your total gross income (you do not have to subtract any deductions from your total gross income).
U.S. lawmakers also limited the types of medical expenses you can deduct from your tax return. Starting in the 2019 tax year, you can only deduct medical expenses that have not been reimbursed, but only as long as the medical treatment qualifies for reimbursement. Our Miami personal injury attorney explains that the vast majority of medical treatment qualify for reimbursement. The only exceptions are cosmetic procedures such as plastic surgery as well as non-prescription drugs and certain items for general health.
If you decided to pursue a personal injury lawsuit, and you receive a settlement or verdict, your tax status could be altered once again. Generally, there are two types of damages received in personal injury cases: compensatory and punitive. Compensatory damages are classified as non-taxable income, as they serve the purpose of compensating for your financial losses and expenses.
Punitive damages, on the other hand, are considered taxable income under U.S. law. Depending on the value of punitive damages in your personal injury claim, your tax bracket could change once you receive the punitive damages. Let our best personal injury lawyers in Florida review your particular case and explain how your settlement or verdict may affect your tax status in your particular case.