Tips on Lawfully Avoiding Taxes on Your Maryland Personal Injury Settlement
Our clients often ask: “Is my Waldorf, Maryland personal injury settlement taxable?” The answer is both “yes and no.” That is, some parts of a personal injury settlement are taxable while other parts are not. The experienced and seasoned Waldorf, Maryland, at the Law Office of Robert Castro provide this article to discuss some of the categories of damages that can be recovered, which are taxable, and how to lawfully avoid taxes on your Maryland personal injury settlement. If you have been injured in a Maryland accident, call us for a legal consultation. Our number is (301) 870-1200.
What are potential damages in a Maryland personal injury case?
If you have been the victim in a personal injury accident here in Waldorf, Maryland, or other communities in southern Maryland, you are entitled to recover ALL of your damages from the at-fault party (or parties). A couple of examples would be ALL of your medical bills and ALL of your lost wages and income from a time when you were not able to work while recovering from your injuries. These are two categories of damages. Other categories include:
- Costs of repairs to damages property — like your car
- Costs for therapy — emotional, physical, and vocational
- Damages for pain and suffering\
- Inconvenience
- Physical impairment
- Disfigurement
- Loss of consortium
Are Maryland personal injury settlements taxable?
As noted, most categories of personal injury damages are NOT taxable, but some ARE. The main category that IS taxable is compensation for lost wages and earnings. This makes sense because the personal injury claim is for lost earnings and income. Earnings and income are almost always subject to income tax. By contrast, most other categories of damages are compensation which is a form of reimbursement. Reimbursement is generally NOT INCOME and, thus, not subject to income tax. Moreover, tax laws make certain categories of damages in a Maryland personal injury case not subject to taxation. Recovery for pain and suffering is one example where the law states that the money recovered for pain and suffering is not subject to income tax.
Tips for lawful tax avoidance in Maryland personal injury settlements
Because different categories of damages in a Maryland personal injury settlement are treated differently for tax purposes, there are ways to lawfully structure a settlement to avoid some taxes. This must be done carefully and can only be done in accordance with the tax codes and regulations. For example, if the ONLY damages suffered were loss of income, then you could not just SAY all the settlement money was for pain and suffering. There must be some reasonable relationship between the way the settlement is structured and the facts of the case. But, for a counter-example, assume that the total insurance policy is $25,000. Let’s assume the medical bills are about $10,000 and the vehicle repair costs are about $5,000. If the insurance company is willing to settle for the policy limits, you could withdraw any claim for lost wages/earnings and claim the remaining $10,000 as compensation for non-taxable categories of damages such as pain and suffering, inconvenience, etc.
As can be seen, this is complicated. You will need the help of experienced Maryland personal injury lawyers.
Contact Waldorf, MD Personal Injury Attorney Robert Castro Today
This article has been provided by the Law Office of Robert Castro. For more information or questions, contact our office to speak to an experienced Maryland personal injury lawyer at (301) 870-1200. We are Waldorf, MD, Personal Injury lawyers. Our address is 2670 Crain Highway, Waldorf, MD, 20601.
