Are Personal Injury Settlements Taxable in South Carolina?

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The process to reach a settlement or jury trial award in a personal injury case can be a complex and exhausting process, especially since youre likely still in pain and dealing with ongoing medical treatments. Retaining a Lancaster personal injury attorney is highly recommended, as your attorney will protect your interests and help you to get the settlement you deserve.

Some people, especially those who handle their own cases, are unaware that come tax time, they may be responsible for some taxes. Its important that people are made aware of the potential tax implications of a personal injury settlement. There may be ways to structure the settlement amount so that you are not subject to the applicable taxes. This is one of the reasons it’s important to speak with a Lancaster personal injury attorney who can advise you on the best way to proceed.


Taxable Portion of a Personal Injury Settlement

Your entire settlement is not taxable since the idea behind a personal injury settlement is to make you whole again. Compensatory damages, which is money designed to compensate you for medical expenses, property damages, injuries, etc., are not taxable. These damages are reimbursing you for the money you already have spent or are spending, and therefore cannot be taxed. Its not new money nor a gift, so the law doesnt believe there is anything to be taxed. However, it gets more complex if you took deductions the prior year for medical expenses as you may be subject to taxes now.

The portion that is taxed is the amount you receive for lost income or future loss of earnings. This is money you would be paying income tax on if you were working. The original income you get if you were working would be subject to taxes, so the IRS wants their portion of this taxable income. In situations where you receive an award for loss of earnings as a lump sum, its important to remember that it could push you into a higher tax bracket. Your attorney can look to get you additional income to help cover the outstanding tax liability created by your settlement.

Determining whether pain and suffering compensation or compensation for emotional distress is taxable can be more complicated. In South Carolina, any compensation you receive that can be attributed to any type of physical injury is not likely to subject to taxes. If the compensation is for emotional distress that doesnt originate from a physical injury or sickness, it will need to be included in your income. You could be taxed then on an award for emotional distress. This is why its important to speak with a knowledgeable Lancaster personal injury attorney.


Punitive Damages in South Carolina

In the select few cases that include an award for punitive damages, these are always taxed. Punitive damages are not designed to compensate; their purpose is to punishthe at-fault party for their egregious or extremely reckless behavior. You may see an award for punitive damages in cases involving a drunk driver. Because punitive damage awards are often high, you can expect to have a corresponding high tax liability.


Retaining a South Carolina Personal Injury Attorney

If you have questions regarding the taxable aspects of a personal injury settlement, and/or you need representation for your pending case in Lancaster, contact the Elrod Pope Accident & Injury Attorneys today at 803-599-3080 to schedule a consultation.

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