Compensation for the victim of a personal injury is supposed to help that victim get back to where he or she was before. Consequently, most of the proceeds are not taxable. Still a few of them can be subject to taxes.
Is there a tax on compensation for medical bills?
No, that money cannot be taxed, as long as the compensated victim does not try to claim that particular loss as a tax deduction. Victims that take such a step do invite the government to tax some of the money in their compensation package. In addition, the condition that created the need for medical services also plays a part in determining whether or not payments for medical bills could be taxed. Money used to cover mental treatments could be taxed, if the victim had not reported any physical injuries.
What about money for property damage?
Money that covers only the cost of lost or damaged property is not taxable. Yet, some victims charge interest for personal injury settlements. If that settlement included property damage, the money for interest would be taxed. Indeed, any interest on a personal injury settlement can be declared taxable.
If a victim gets rewarded punitive damages, are those taxed?
Yes, money for punitive damages can be taxed. Still, a Personal Injury Lawyer in Halifax could try working with a judge, so that some of the money that would have been identified as punitive damages might be used to compensate for an actual loss.
For example, it could be that the victim’s lost income included more than lost wages. A lawyer might ask a judge to provide that same client/victim with more money for lost income, in place of some of the money that was to be offered as punitive damages.
In that way, the plaintiff/client would not get a single penny more or less than the court had suggested. Instead, less of what that same client received would be subject to taxes. A judge would probably go along with such an idea, as long as the defendant got required to cover at least a limited number of punitive damages.
Courts normally use punitive damages as a type of punishment. Defendants that get hit with such a punishment have to pay more than what would have been needed to compensate the plaintiff/victim. In that way, the punished defendants get told to avoid acting in a socially unacceptable manner.
The judge teaches the defendant a lesson. The public notice of that courtroom lesson could easily prove as effective as a different punitive damage, even if it was one that demanded a bit less money than a different damage award. That could be the award that the court-appointed judge had proposed earlier.