Shedding Light on Personal Injury Payouts

Personal injury payouts often remain cloaked in a shroud of ambiguity, leading to numerous misconceptions and untapped entitlements. This is partly due to the sensitive nature of personal injury lawsuits and the varying factors that can affect the final settlement amount.

To illuminate this often misunderstood area, this blog post aims to unearth surprising insights and little-known facts about personal injury payouts. Hopefully, you'll understand what you may be entitled to if your case is successful.

Taxes May Apply in Certain Cases

Contrary to popular belief, personal injury settlements are not always entirely tax-free. While the Internal Revenue Service (IRS) generally excludes damages received for physical illness or injury from taxable income, there are certain exceptions.

For instance, when you receive a settlement for emotional distress or mental anguish unrelated to the physical injury, it's considered taxable income. Additionally, punitive damages, awarded to punish the defendant and deter others from engaging in similar behavior, are taxable.

Further nuances come into play if you claim deductions for medical expenses related to the injury on your tax return. If you receive a settlement later and it covers those same medical costs, you must "recapture" the amount you deducted in the past, and this becomes taxable.

Understanding these tax implications is critical when negotiating a settlement, as the after-tax amount is ultimately what matters to you as the plaintiff.

Structured Settlements Are Still an Option

In some cases, instead of a one-time lump sum payment, the defendant will agree to pay the settlement amount in installments over time. These are known as structured settlements, and they offer some advantages to the recipient.

First, structured settlements can provide a reliable source of income for an extended period, possibly even covering future expenses related to the injury. This is particularly beneficial if the plaintiff cannot work or faces ongoing medical costs due to their injury. The payments from a structured settlement are generally tax-free, providing added financial security.

However, you need to consider potential drawbacks as well. You might lose the option to access your entire settlement amount immediately, which could be necessary if you face financial difficulties due to your injury. In other words, if you need a large sum of money upfront to cover medical bills, structured settlements may not be suitable.

You need to carefully weigh the pros and cons with your attorney before you decide on a structured settlement. Remember that every case is unique, and what may be the best option for one person may not work for you.

The Payout Process Can Take Time

The process of receiving a personal injury payout can be lengthy, largely due to the complexities of legal proceedings and the need for detailed investigation into the claim. After an injury, you need to collect evidence, consult with medical professionals about the extent and implications of the injury, and seek legal advice.

Once you file a lawsuit, your lawyer needs to gather information in the discovery phase, which can take months. Negotiations for settlements can then begin. But if a settlement isn't reached, the case may go to trial, further extending the timeline. Depending on the complexity of the case and the court's schedule, it could be several months before a trial begins and reaches a conclusion.

Another factor that can prolong the payout process is the severity and extent of your injuries. Medical professionals need sufficient time to assess the full impact of the injuries, especially if there's long-term or permanent damage.

Insurers or defending attorneys might also want to wait until the victim has reached 'maximum medical improvement.' At this point, the injured person's condition has stabilized to the extent that no major medical improvements or deterioration is expected. Waiting ensures that all possible costs and implications of the injury are taken into account when calculating the payout.

Need to understand your rights and options about personal injury payouts? Consult Spiegel & Barbato to get the best possible outcome for your case. With our help, you can better understand the potential tax implications, the basics of structured settlements, and the time it takes to receive your payout.