If you have recently been awarded a settlement after a trucking accident in California, you may be wondering how the new tax reform law will affect your payment. Your concern may follow news that plaintiffs will pay higher taxes on their lawsuit settlements. In fact, according to Forbes, some plaintiffs must now pay taxes on the full gross settlement. In the past, plaintiffs were typically allowed to pay taxes on the amount remaining after deducting attorney fees.
The keyword here, however, is “some.” Every case is different and some types of cases will remain generally unaffected by this law. Exceptions include claims resulting from personal physical injury, such as in trucking or commercial accidents, and when employees sue their employers. In these instances, plaintiffs are typically allowed an above the line deduction. Below the line deductions are generally no longer allowed.
Unfortunately, this is still not quite the full story. Forbes later goes on to add an informal asterisk to the personal injury claims exception. It shared a list illustrating some of the settlement types that now owe taxes on 100% of the amount. The list includes punitive damages from a truck driver for personal injury cases. Put simply, if the judge awards you a larger than normal figure to punish the defendant for gross negligence or other harmful behavior, you owe taxes on 100% of that amount.
Naturally, many plaintiffs who have been struggling to get their voices heard in court are not happy about the tax reform. Even so, by getting a heads-up about what to expect, you can better prepare for the tax aftermath of winning your case.
This article provides information on how the new tax reform may affect settlements paid to plaintiffs in trucking accidents. It should not be used as legal or professional financial advice.