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New tax plan taxes the emotionally injured

Nobody wants to fall victim to a serious accident, but one bright spot to look forward to, are the tax-free damages you could receive due to compensatory physical injuries or sickness. Your personal injury could occur from a trip, slip, fall, motor vehicle accident, medical negligence, industrial accident or mechanical accident among others.

Trump’s tax code has adapted this tax-free treatment. Now, only compensatory damages will be tax free, while punitive damages and interest will be taxable. To put this in simpler terms, you must have incurred physical injuries to receive tax-free damages. Emotional distress and physical conditions linked to emotional distress, such as headaches and insomnia is no longer enough.

What counts as a “physical injury?”

It’s confusing. All claims of emotional distress is now taxable, but if you claimed that the injury or defendant caused you “physical sickness,” that would count toward tax-free damages. If that physical sickness was caused by emotional distress, it would be taxed. In contrast, if you are physically injured and that injury leads to an emotional affliction, the damages received would be tax-free.

How will the taxes be doled out?

If your attorney charges a contingent fee, which means they don’t get paid unless you get paid, you will be taxed as if you personally walked away with 100% of the recovered money. Newsflash: you didn’t. Your attorney will likely receive 40% of the recovered damages. Because of this, tax troubles could be in your future.

If your case cannot be taxed (you suffered only physical injuries and will only receive compensatory damages,) no tax issues should arise. If you’re still confused, as tax law and the process of personal injury claim are very technical topics, consider consulting a respected and successful personal injury attorney to look over your case and determine the best course of action.


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