Are You Wondering About the Tax Implications of Your Personal Injury Settlement in Portland, Oregon?
Understanding how these settlements are taxed is significant for plaintiffs to ensure compliance with tax laws.
Let’s examine the general taxability of personal injury lawsuit settlements in Portland, including the different types of damages and payments that may be subject to taxation and any potential deductions or exemptions that may apply.
Types of Settlements in Personal Injury Cases
After a personal injury, you can expect one of the following types of arrangements for your settlement.
- Lump Sum Settlements: A one-time payment settles the entire personal injury claim. Provides immediate compensation for injuries, medical expenses, lost income, loss of enjoyment, emotional distress, and other damages. It can be suitable for cases where the full extent of damages is known, and there is a chance for a quick resolution.
- Structured Settlements: Payments are spread out over a predetermined period or through a series of scheduled payments. It offers a steady income stream, often used for long-term medical care or ongoing expenses. It provides financial security over an extended period but lacks flexibility compared to lump sum settlements.
- Hybrid Settlements: They combine elements of both lump sum and structured settlements. Initial lump sum payment covers immediate financial requirements like medical bills, while the remaining compensation is distributed through structured payments. Hybrid settlements offer a balance between immediate financial relief and long-term financial stability.
Taxability of Compensation for Personal Injury Settlements in Portland
In Portland, personal injury settlements are subject to specific tax laws; therefore, consider the facts and circumstances of each settlement payment to determine the reason for receiving the money, as not all settlement amounts are exempt from taxes.
Non-Taxable Compensation for Personal Injury Cases
Compensatory damages received for personal physical injuries are generally excluded from gross income. This means that personal injury settlements attributed to physical injuries are not subject to income tax. Following income derived from any source not included in the gross income, which includes: [1]
- Workers’ compensation payments serve as compensation for personal injuries
- Compensation obtained for personal physical injuries, excluding punitive damages, may be received in a lump sum or in installments through a lawsuit or settlement
- Payments for personal injuries from insurance or similar arrangements
- Pensions, annuities, and allowances for injuries related to military service or as disability annuities
- Disability income from injuries caused by terrorist or military actions
- Emotional distress compensation directly related to a physical injury
- Wrongful death claim proceeds, or punitive damages received in connection with wrongful death [2]
Settlements in Personal Injury Cases That Are Taxable
In Portland, Oregon, lawsuit settlements in personal injury lawsuits can be taxable under certain circumstances, according to the IRS regulations for the United States. The taxability of a personal injury settlement depends on the nature of the damages awarded. [3]
Compensation for non-physical injuries such as emotional harm may be taxable depending on the case’s specific circumstances.
In Portland, the interest from the settlement for economic damages and compensation for lost wages is considered ordinary income and may be subject to taxation. If the plaintiff previously claimed a tax deduction for medical expenses related to the injury, any portion of the settlement reimburses these deducted expenses will be taxable. [4]
The compensation received for discrimination based on age, race, gender, religion, or disability is not excludable from gross income. [5]
Violating tax laws in Portland can result in severe penalties and tax consequences. Therefore, individuals must comply with the city’s tax regulations while receiving compensatory damages to avoid potential fines and legal action.
Contact us today to speak with personal injury lawyers in Portland who can provide the information you need regarding the taxability of personal injury settlements in Oregon.
FAQs
To minimize the tax impact of a personal injury settlement in Portland is to ensure that the settlement is structured to allocate as much compensation as possible to physical injuries. Carefully document and specify the nature of the damages awarded in the settlement to ensure that any non-taxable compensation is properly identified and separated from potentially taxable amounts.
Sources:
[1] 26 USC 104: Compensation for injuries or sickness. (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section104&num=0&edition=prelim
[2] Lawsuits, Awards, and Settlements Audit Techniques Guide. (n.d.). IRS. Retrieved January 19, 2024, from https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf
[3] Is my settlement taxable? (2011, February 9). Oregonlive. https://www.oregonlive.com/taxes/2011/02/is_my_settlement_taxable.html
[4] Miscellaneous Deductions. (n.d.). IRS. Retrieved January 19, 2024, from https://www.irs.gov/pub/irs-prior/p529–2020.pdf
[5] Tax Implications of Settlements and Judgments | Internal Revenue Service. (n.d.). https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments
