Monday, December 6, 2010

Personal Injury Proceeds-taxation

Personal Injury proceeds are NOT taxable

Personal injury proceeds are considered compensation of injuries and losses, it is not a "gain" or "windfall" under the tax codes.
Actually, whether personal injury damage awards are taxable depends on what the award is for. If it is to compensate for personal physical injuries or sickness, then it's not taxable (IRC Section 104(a)(2)). Emotional injury that is the result of of physical injury may not be taxable; however emotional injury that is the result of nonphysical injury (for instance, defamation or trespass) is generally taxable. Likewise, lost wages that are the result of physical injury may not be taxable. (See IRS Guidance: Lawsuit Awards and Settlements and Rev. Ruling 85-97.)

For further clarification, contact us.

No comments:

Post a Comment