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Are Personal Injury Settlements Taxable in Nebraska?

Published on Aug 21, 2018 at 1:53 pm in Personal Injury.

According to the U.S. Department of Justice, personal injury cases typically revolve around motor vehicle accidents, medical malpractice, and product liability. To win a personal injury case and receive compensation for the damages you’ve sustained, you must be able to prove your injury was the result of negligent actions or inactions by another person or entity.

In the event you prove your case and are awarded a settlement, you may have questions about how this compensation impacts how the government views your income. Depending on your case and settlement terms, your compensation may or may not be taxable.

Read on to find out about personal injury claims in Nebraska, as well as the taxability of your settlement.

Filing a Personal Injury Claim in Nebraska

The statutes in Chapter 25 of Nebraska’s legislature contains the civil law proceedings for a variety of personal injury claims. In Nebraska, you have four years to file your personal injury claim in the state’s civil court system. If you neglect to file within the specified timeframe, you may lose your rights to compensation.

To present a strong case, you’ll need to be aware of the date and place of your accident, any useful witness testimonies, the details of your injuries and treatment plan, and the loss sustained to your person or belongings.

If you and your attorney successfully prove your case, you’ll be awarded a settlement for your damages. The taxability of settlements is determined by the Internal Revenue Service (IRS).

Non-taxable Personal Injury Settlements

Emotional Distress. If the settlement you receive is for emotional distress or mental anguish that resulted from a physical injury, the compensation is not taxable.

Loss-in-Value of Property. In the event of a property settlement where your property value decreased less than the adjusted base on your property, the compensation is not taxable.

Personal Physical Injuries and Illnesses. If you receive a settlement for physical injuries or physical sickness, the full amount is non-taxable. You should not include the settlement amount in your income.

Taxable Personal Injury Settlements

Emotional Distress. Settlements for emotional distress are taxable if the distress did not originate from a physical injury. The amount of the settlement you include is reduced by the amount paid for medical expenses that have not been deducted, and previously deducted medical expenses that did not provide a tax benefit.

Interest. Interest on any settlement is taxable.

Itemized Deductions for Medical Expenses. If you sustained a physical injury and took an itemized deduction for medical expenses, you must include that portion of the settlement in your income.

Lost Profits. If your settlement is for lost profits from your business or trade, the portion of the compensation for running your business or trade is subject to self-employment tax.

Lost Wages. If you receive compensation for an employment-related lawsuit, the portion of the settlement that is for lost wages is taxable. It is also subject to the social security subject wage base and social security and Medicare tax rates.

Punitive Damages. All punitive damages, even those awarded for physical injuries or illnesses, are taxable and should be reported.

Our personal injury lawyers at Welsh & Welsh have the knowledge and experience necessary to handle a variety of personal injury claims and cases. In the event you are looking for an attorney in the Omaha area, contact us today for a free consultation.