A Piece of the Pie: Deductions and Your Personal Injury Compensation

If you have been in an accident with a careless driver, you may be entitled to compensation. Money is owed to you for a number of forms of damage, from your medical expenses to pain and suffering. Before you can know how much you are owed, you have to know how much of that compensation will go toward the costs of taking legal action and getting paid. To help you understand how what you are awarded gets divided up, read on so it can be part of your decision to accept a settlement.

Compensation and Deductions

It's important to ask for what you deserve and it's just as important to take into account what could be deducted from that award. Take a look in more detail at how your compensation will be affected by legal fees and taxes.

Legal Fees

It's safe to say that almost all personal injury lawyers use a contingency fee arrangement to be paid. That means the lawyer only gets paid if you win your case and their fees will come out of any compensation you receive. The attorney fee is expressed as a percentage of your compensation. So, if you are awarded $100,000 and the attorney fee is 20% of that, the attorney is paid $20,000. If you lose your case, nothing is owed to the attorney. The amount of the percentage is negotiable and may be based on common practices in your area, the experience of the attorney, the complexity of your case, and more.

Income Taxes

You may not consider personal injury compensation after an accident as income, and it's not, in most cases. Just as a warning, don't use the below information as financial or tax advice. The more money you are owed, the more important it will be to speak to a financial adviser for help. Usually, the money paid for medical expenses is not taxable. If you used those medical expenses as a tax deduction, however, you will need to speak to a tax specialist. If you were paid lost wages as a result of the accident, they will be taxed as if they were income since they are replacing your income. Pain and suffering is sometimes paid to victims, and that form of damage is not taxable. Finally, punitive damages are usually taxable.

This can be a complicated area, and your personal injury lawyer can guide you in making good decisions. When you consider the overall picture of your injury claim, a small percentage for legal fees and taxes is well worth the positive outcome.