The numbers are decided upon and you are happy to put this behind you. However, you are concerned about receiving a lump sum payment. Are you required to pay taxes on that money?  Is any of this money considered income? Fortunately, in the state of Georgia, you do not normally have to pay taxes on the settlement. The settlement is not taxed but other awards can be. Tax laws can be complicated and there are a few exceptions. So, there are some things you need to know. (Consult with your lawyer too.)

Punitive Damages

When a judge decides that the injury caused to you was so striking and so outrageous that the person who caused it needs to be punished, he or she will award punitive damages. Punitive damages are not for repayment of expenses. They are purely an award to you, meant to punish the person or company who caused you to be hurt. As such, the Internal Revenue Service considers punitive damages as income, and you are required to pay taxes on that portion of your settlement.

Invasion of privacy is considered a form of punitive damages. Any award for invasion of privacy is taxed as a punitive damages award.

Lost Wages

Had you not been hurt, you would have worked and earned a particular salary. That salary would have been taxable income. Therefore, if you are awarded a payment for the wages you lost, they are considered taxable income, and you will be required to pay taxes on them.  In the event that you work on bonuses and commission, the court will estimate lost wages based on the past few months.

Mental Anguish and Emotional Distress

If the mental anguish and emotional distress you suffered were directly due to the injuries you sustained, then they are not taxable. However, if the court rules that you are entitled to payment for the mental anguish and emotional distress, but it is not a direct result of your injuries, it is considered income. As income, it is taxable.

Discrimination, Defamation, Wrongful Termination

Discrimination usually falls under the heading of lost income. The victim was unable to be fairly compensated due to them being discriminated against. The award then is considered income and taxable. If the court rules the act merits punitive damages (as a form of punishment to the employer), that too is considered income and taxable.

The same concept applies to defamation and wrongful termination. These infractions cause a loss of wages. When you are compensated for those wages, it is taxable income.

Harassment

Harassment is difficult to pinpoint. Sometimes the law considers it emotional distress, and sometimes they determine it is an injury. Therefore, harassment must be looked at on a case by case basis. In most cases, the Internal Revenue Service does tax this amount of the settlement.

As you can see the majority of your settlement is tax-free. However, the laws are complicated, and there might be some taxes due. It is best to consult with your personal injury attorney to ensure you are compliant with all legalities of your settlement.