Are Personal Injury Lawsuit Winnings Taxable In Florida?
When you decide to take someone to court to sue them for personal injury, negligence, or even wrongful death, your primary concern during this venture is simply winning the case. Both you and your attorney are focused on gathering evidence, securing witness and expert testimony, and ultimately providing the evidence to a jury that they need to understand that your case has merit. Then they award you a verdict that pays out the financial compensation you are trying to secure.
But the financial damages you receive are, at the end of the day, money. So how does the IRS feel about this? When you go to court, and you receive damages for lost wages, or even pain and suffering from a wrongful death, is the money that is awarded to you something you will need to take into account as taxable income when the next tax season arrives?
The Federal Government Isn’t Interested
No matter where you live in the United States, the one thing that that Federal government laid out 100 years ago, in 1918, was that personal injury-related financial damages were “protected.” At the Federal level, the government has no interest in taxing anything that is awarded to a litigator in court. So if someone sues for personal injury, this isn’t something you need to worry about filing away for taxes. Suing for property damage, breach of contract, or other non-injury related suits, however, may be fair game.
It’s important to note, however, that this type of exemption is strictly Federal. The state level does not necessarily have to agree with this. And in some cases in Florida law, it doesn’t.
Florida Is More Precise
This does not mean that every single civil lawsuit can simply calculate gross income, before taxes, and then expect to be rewarded that amount. When it comes to negligence cases seeking compensation for car damage, or for workers compensation, as an example, the amounts may not be as straightforward to calculate.
Workers compensation, for example, may not receive the “full amount” for lost wages, based on a variety of different factors, but the actual amounts that are awarded are not going to be considered as income for the recipients. The IRS however, may very well tax the lost wages you are receiving, unless they are directly tied to a personal injury lawsuit. This is also the case when it comes to wrongful death lawsuits, where the deceased was a financial contributor to a family’s income, but here, a different consideration bears examination.
The one area where Florida law takes a stand on calculating amounts for financial damage comes into play with wrongful death. The amount awarded—barring punitive damages, which is a different consideration entire-ly—may be calculated based on what the deceased would have earned after taxes had been added.
So it’s important to realize that while personal injury lawsuits are not taxed by the IRS, associated financial damages, such as wrongful death, car repair, or lost wages may fall under tax jurisdiction, either in that taxes are “deducted” as part of the calculation, or that the damages themselves may be considered taxable as income.