General Damages: Personal Injury FAQ

In a personal injury lawsuit there are typically general damages and punitive damages. Three frequently asked questions regarding general damages are answered below.

When an accident victim receives money for general damages, does she have to pay income tax on them?

Answer: If an accident victim received compensation for medical costs, those payments are not taxed. If a person receives compensation for lost wages though, the Internal Revenue Service treats that compensation the same as it would if the person had received that money as income from working. Different states have different requirements for tax consequences regarding general damages. Whether a victim should pay income taxes for compensation awarded for pain and suffering is under debate in some states.

If the accident victim is a minor (under age 18) is there some way to protect the money so the minor actually gets the money rather than a greedy parent?

Answer: Yes, there are a few ways a settlement for a minor can be protected. A structured tax-free annuity is one way to put the money away for a younger child so the money will be available to the victim when he is no longer a minor. A trust can also be set up for the minor and the trustee appointed to watch over the money can be a non-family member like an attorney or a banker who is put in charge of keeping detailed records of payments made. The advantage of a trust is that medical bills and other costs can be paid for the minor’s benefit while the minor is too young to receive an annuity. Both a trust and an annuity will offer protection for the minor’s award.

If an accident victim has a structured settlement, can he get all his money in a lump sum if he has a financial emergency?

Answer: There are many companies who advertise that they will give accident victims immediate cash in exchange for a structured settlement or annuity. An accident victim should use extreme caution in dealing with such companies. There are lots of hidden fees and interest rates and an accident victim can end up losing half of his settlement by agreeing to get cash fast. A victim should consult an attorney or a reputable financial planner before agreeing to such an arrangement.

Getting Legal Help

An accident victim who has incurred costs for medical care or property damage resulting from the negligence of another should consult a personal injury attorney. A personal injury attorney will offer a free consultation and will usually take your case for free. Most personal injury attorneys will only get paid if you get paid, so you have nothing to lose and everything to gain by contacting an attorney to learn your rights following an accident.

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