When you settle your case, some of the damages you receive are taxable. An Orange County business attorney explains this in more depth in the following post.
Lost Wages, Lost Benefits
Once you and your Orange County business attorney have won your case, any funds awarded to you as damages for lost wages, lost employee benefits or other financial damages must be declared with your gross income. Taxable income includes monies received from any and all sources under federal income tax law.
Illness or Injury
Unlike damages for lost income, you will not be required to include damages for physical illness or injury in your gross income. If you were hurt as a result of something that happened while you were at work, your Orange County business attorney should ensure that your settlement agreement assigns at least some of your damages to physical injury. Remaining funds can be allocated to punitive or economic damages as appropriate.
Emotional Pain and Suffering
If you incurred medical expenses as a result of emotional suffering, the damages received for these are not considered taxable income. However, your Orange County business lawyer will advise you that, under federal tax law, emotional suffering in itself is not considered a physical illness or injury and therefore is included under gross income.
Consult a Tax Attorney
Your Orange County business lawyer can examine and propose alterations to the wording of your settlement agreement that may mitigate or remove the danger of undesirable tax consequences and reduce any liability on your part.
The advice and guidance of an experienced Orange County business attorney will be crucial in determining what the tax consequences of your settlement may be. Call Daily Aljian LLP at 949-861-2524 and ensure that you are protected.