Is Your New York Personal Injury Settlement Taxable?
April 22, 2021 | Personal Injury
In New York, payments awarded for certain types of legal damages are exempt from taxes, while others are not.
Here are the essentials on settlements in the Empire State to help you determine whether your personal injury settlement is taxable.
Which Types of Damages Are Exempt From Taxes in New York?
In the Empire State, certain damages are tax free. Generally, tax-exempt damages will fall under compensatory damages—those awarded as direct compensation for expenses caused by the injury. Compensatory damages may include:
- Medical expenses for physical injuries or illness: If you’re injured due to the negligence of another party, the compensation you receive to pay for medical bills will not be taxable. These cases include car accident injuries, illnesses caused through negligence such as mesothelioma developed due to asbestos exposure, etc.
- Loss of wages and other expenses: Compensation for wages lost due to the inability to work because of the personal injury or illness is not taxed in New York.
- Emotional distress: Amounts allocated for emotional distress caused by the physical injury itself are tax exempt; however, if you are only pursuing damages for emotional distress—not related to or caused by a physical injury—those damages will be taxable.
Which Types of Damages Are Not Exempt From Taxes in New York?
In personal injury cases, punitive damages, which are damages the defendant pays as punishment for egregious conduct, are taxable.
This means that if you are awarded damages based on your medical expenses or other aspects of your industry, that amount will not be taxed; if punitive damages are added to your compensation, only the specific amount awarded for punitive damages in your personal injury settlement will be taxable.
As you might expect, this means that the specific terms of your settlement are vitally important when it comes to your compensation’s tax status. It’s essential that you work with a knowledgeable, experienced New York personal injury lawyer to ensure that every aspect of your settlement is created to your maximum benefit.
The law may also require you to pay taxes on post-judgment interest that accrues because of an outstanding jury award. Taxes associated with this situation occur because the defendant appeals the judgment after the jury awards a plaintiff any sum of money.
How Can You Receive Your Personal Injury Settlement?
There are different settlement offers for receiving compensation for personal injury, including:
A decreasing settlement enables you to receive a large sum of money at the beginning of your settlement. As time progresses, you will receive smaller payments. For example, if you receive a $300,000 settlement, you could request $75,000 up front, $1,500 a week for the next 150 weeks, and $600 for the remaining weeks until the settlement is paid in full.
An increasing settlement allows you to receive compensation that gives you increasing payments over your settlement duration. This accommodation type is a reasonable option if you will have future medical expenses because of your injury.
Lump-sum settlements provide you with full payment of your settlement funds. This type of settlement pays out as a single payment.
Delayed settlements are an option if you’re not in immediate need of cash. This type of settlement means the insurance company will not start making payments until a specific date. For example, they can make settlement payments when you reach a certain age or retire.
Work with Experienced New York Personal Injury Attorneys
At Napoli Shkolnik Attorneys at Law, we’re dedicated to helping you receive justice and fair compensation. We are skilled at helping you through every step of your personal injury case, from gathering evidence to negotiating the minute, essential details of your settlement. Contact us today to learn more about how we can help you with your case.
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