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Do You have to Pay Tax on Your Settlement Amount

If you have been injured by the negligence of your doctor or hospital while receiving treatment, then you can file a medical malpractice lawsuit to receive compensation. You might receive compensation through a settlement or by the ruling of the jury after the trial has ended. Most people think that if they go forward with a lawsuit and they are successful in receiving the compensation, they think that amount is taxable.

The Bright & Sunny News

However, the positive news is that money you receive, as compensation for the harms and losses you have suffered because of somebody else's carelessness is not taxable. Even if the settlement goes towards compensation for the pain and suffering you endured, then that too is not taxable. The reason why your settlement amount or the amount awarded by the jury is not taxable is that it is not earned income. It is not as if you had to work for that money. Instead, you suffered these injuries because of somebody else's carelessness and the system of justice in our country says that you should be repaid.

The wrongdoer has a debt to pay to the society, and especially to you. The wrongdoers have to repay you the money that they owe to you. Since the money you receive is as compensation, the law looks at the amount differently. The law says that you have not worked the entire year, to earn that money. Instead, the money you receive is for compensating you for the harms and losses you have suffered due to another person's carelessness or negligence. It does not matter who was careless, it could be a doctor, a hospital, a company, or a careless driver or it could be anybody.

When is Your Money Taxed

In certain very rare instances, part of your verdict or part of your settlement amount might be taxable. However, for the most part, including for pain and suffering the money you receive, as compensation is not taxable. Once you take your settlement money and invest it, and if that generates interests or profits, then that money are taxable. The mere fact of obtaining the compensation, then that money is not taxable, but if you invest it and that generates a return on your investment, then that money is taxable.

A Reward is not Earnings

The whole point of filing a lawsuit is for receiving compensation for your injuries, and it is not for earning money. The harm has already been done to you, the damage has already occurred, and you are seeking compensation for that harm and damage, from the person or entity who is responsible for causing you the injuries due to their negligence. Therefore, the successful culmination of such lawsuit whether it is through a settlement or jury verdict is for providing compensation and not remuneration.

Therefore, whatever losses you are recovering, whether it is your medical expenses, loss of income, pain and suffering, they are not taxable. Since you have suffered harm and damage due to another person's carelessness or negligence, you are entitled to compensation from that person. Such compensation is not earnings and therefore not taxable. The government may tax everything else but not this!

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