IRS Form for a Personal Injury Case
If you or a loved one were injured and want to settle your case, it’s important to understand what forms you need to file with the Internal Revenue Service (IRS) and why. If you do not report your personal injury settlement correctly, there are serious consequences that could impact your financial future.
A personal injury settlement is the amount of money that you receive for your injuries. Usually, settlements are paid by the at-fault party’s insurance company. The defendant may have to pay the settlement themselves if they do not have insurance coverage. Here’s what you need to know about the proper IRS form for a personal injury case.
What Form Should You Use to Report a Personal Injury Settlement?
Ordinarily, whenever you receive payments that are not on your W-2, you must use IRS Form 1099-MISC to report the earnings. This form details the amount of money you received and how it was distributed.
Here’s the good news – personal injury settlements are an exception to this rule. The American Bar Association confirms that you do not have to report any settlements you receive in a personal injury case to the IRS.
Are Personal Injury Settlements Taxable in Florida?
The IRS has specific instructions about the proper form(s) to use for reporting any money made during the calendar year. As mentioned above, personal injury settlements are not taxable. Therefore, it’s in your best interest to hire a personal injury attorney who can work to get you to the highest settlement possible.
After Receiving a Personal Injury Settlement, Do You Have to Complete Any Sort of IRS Form?
No, you do not have to complete an IRS Form 1099-MISC. As explained by the IRS, the 1099-MISC form is required if you receive more than $600 of other income aside from your personal injury settlement.
However, according to the IRS, you may have to use this form to report income if you previously received tax deductions on your medical expenses or other expenses that are now covered by your personal injury settlement – yet another reason to have an attorney on your side.
What Are the Consequences for Not Reporting Your Personal Injury Settlement?
If you do not report your personal injury settlement to the IRS after you claim tax deductions, there may be serious consequences.
For example, you may face:
- Tax penalties. The IRS will assess taxes on the taxable portion of your settlement and send you a bill for that amount, in addition to any interest or penalties.
- Criminal investigation. If you are involved in a criminal investigation regarding this matter, it will be reported to law enforcement agencies as well as the IRS (for cases involving tax evasion).
- Civil lawsuit. A civil lawsuit could be filed against you for failure to report income correctly, and you would be unable to deduct any costs related to medical treatment from your taxes until the money is repaid.
What Is the Taxable Portion of a Personal Injury Settlement?
Again, personal injury settlements are typically tax-exempt. However, if you claimed relief from the IRS for related expenses, you are duty-bound to report any personal injury settlement received. The taxable portion of your personal injury settlement would be any amount over the deductible tax.
In these situations, the IRS will consider any settlement payment as income earned by you that is subject to taxation after subtracting any personal expenses incurred during your recovery, such as medical bills or lost wages caused by the injuries you sustained.
How Do You Report a Personal Injury Settlement in Florida?
The reporting process is complicated, and you will likely need assistance. It is beneficial to have a personal injury attorney on your side who understands the intricacies of reporting personal injury cases to the IRS and other agencies.
Having a knowledgeable person on your team can help you navigate the reporting process and prevent avoidable consequences. For example, when filing IRS Form 1099-MISC on your own, you could leave out important details that cause the IRS to suspect tax evasion. You could also spend time filling out the form when it is not necessary.
A Fort Lauderdale personal injury attorney can guide you through each step so that no mistakes are made when completing IRS forms or other documents related to filing a claim for medical bills, lost wages, and other compensation. Your Fort Myers personal injury attorney can also keep copies of all necessary documents to avoid potential liability if the IRS comes knocking on your door.
Get an Attorney Today to Help With the IRS Reporting Process
In many cases, there is no need to report your personal injury settlement to the IRS. However, when in doubt, it’s not only your duty but also in your best interest to have an attorney on board. You do not want to face any undue stress for reporting your taxes incorrectly.
At the Law Offices of Wolf & Pravato, we can help you get a fair personal injury settlement with little to no tax liability. We can also expedite the process of receiving your settlement, so you can heal and get your life back faster. To learn more, call us today at (954) 633-8270 for a free consultation.