Understanding Personal Injury Settlements and Taxes

Personal injury clients sometimes ask whether they will have to pay taxes on any compensation recovered in a personal injury claim. The answer is that in most cases, Uncle Sam will not tax the majority of a personal injury settlement.

Personal injury claims are meant to make people who have been injured because of others’ carelessness or recklessness financially whole. At Younce, Vtipil, Baznik & Banks, P.A. we help people who have been seriously injured in accidents through no fault of their own seek full compensation for medical expenses, lost income from missed work, pain and suffering,  property damage (such as in a car accident), and more.

In general, the IRS taxes income. But Internal Revenue Code Section 104 exempts certain income derived from lawsuits, settlements, and awards from taxation depending on the reason it was awarded. Specifically exempted are “any damages (other than punitive damages) received … on account of personal physical injuries or physical sickness.”

As your attorneys, Younce, Vtipil, Baznik & Banks, P.A. would work to structure any settlement you were to receive to minimize your tax burden where possible. We also would advise anyone receiving a substantial settlement to consult a tax advisor.

Types of Compensation Recovered in Personal Injury Cases

A personal injury claim may seek three types of compensation for the individual who has been injured:

• Economic damages, which repay the plaintiff for their monetary losses, such as medical bill payments, lost wages while injured, car repair bills, and diminished earning capacity if the injuries impair the plaintiff’s ability to work for a living.
• Noneconomic damages, which the plaintiff may demand for their physical pain, emotional suffering, loss of enjoyment of life, or loss of consortium.
• Punitive damages, compensation meant to deter wanton acts of recklessness and warn others that such behavior will not be tolerated. Punitive damages are only sought in extraordinary cases and are seldom awarded.

The Internal Revenue Service’s general rule is that all income is taxable from whatever source derived unless exempted by another section of the code.

As we’ve seen, the Tax Code does exempt economic and noneconomic damages derived from personal injury lawsuits in most cases. However, punitive damages, if any are awarded, are taxable in North Carolina.

Are Economic Damages Awarded in Personal Injury Claims Taxed?

In general, economic damages demanded in a personal injury claim, also known as “compensatory damages,” are meant to reimburse the plaintiff for their actual expenses and financial losses. Damages due for medical bills and property damage are based on bills and receipts. Because there is no monetary gain, economic damages are not treated as income and therefore are not taxed.

However, a taxpayer may deduct medical expenses from their taxes for the year they occurred. If this deduction is taken in a year prior to receiving a lawsuit settlement or award, all or part of the compensation the taxpayer eventually recovers for medical bills would be taxable.

It might seem like damages paid for lost wages or diminished earning capacity would be taxed as income, but the IRS Code excludes from gross income “the amount of any damages (other than punitive) received … on account of personal physical injuries or physical sickness.” Further, IRS guidance on tax implications of settlements and judgments says, “the Service has consistently held that compensatory damages, including lost wages, received on account of a personal physical injury are excludable from gross income.”

Are Noneconomic Damages Awarded in Personal Injury Claims Taxed?

Noneconomic damages are so named because there’s no specific dollar value for losses due to pain and suffering. They are paid to compensate the plaintiff for unjust physical pain or discomfort, loss of amenities, and mental distress.

When these payments are a direct result of physical injury, they, too, are exempt from taxation. In a guide focused on the treatment of lawsuit settlements and awards proceeds, the IRS considers a typical recovery in a personal injury case to illustrate the usual meaning of “on account of personal injuries” —

Assume that a taxpayer is in an automobile accident, is injured, and, as a result of that injury, suffers (a) medical expenses, (b) lost wages, and (c) pain, suffering, and emotional distress that cannot be measured with precision. If the taxpayer settles a resulting lawsuit for $30,000 (and if the taxpayer has not previously deducted her medical expenses …), the entire $30,000 would be excludable under § 104(a)(2).

The medical expenses for injuries arising out of the accident clearly constitute damages received “on account of personal injuries.” Similarly, the portion of the settlement intended to compensate for pain and suffering constitutes damages “on account of personal injury.”

Interest Payments on Personal Injury Claims are Taxed

North Carolina law requires insurers to pay interest on claims not paid within the statutory time frames. If the case requires going to court, a final settlement or jury award may include an interest payment on compensation the plaintiff should have had sooner.

Any interest paid on a personal injury claim would have to be reported as income and be subject to taxation.

Contact Our Personal Injury Attorneys

At Younce, Vtipil, Baznik & Banks, P.A. we understand that after a serious injury, you may be unsure of where to turn for help and what the implications of a personal injury lawsuit may be. Our attorneys and legal staff are here to help you understand your legal options and how the law applies to your injury. If we believe that you have a valid injury claim, we will be ready to help you pursue compensation through an insurance settlement or lawsuit.

It costs you nothing to discuss your legal options with an experienced and compassionate personal injury lawyer. An initial legal consultation is free. Contact us today to get started.

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Family Law Attorney at Raleigh Law Firm Named a 2023 Super Lawyer Rising Star

Only a small percentage of lawyers in a state are honored as rising stars each year

The law firm Younce, Vtipil, Baznik & Banks is pleased to announce that partner attorney Ashley T. Banks has been recognized by the Super Lawyers rating service as a 2023 North Carolina Rising Star.

Each year, no more than 2.5 percent of attorneys in the state are selected by the research team at Super Lawyers to receive this honor. A Thomson Reuters business, Super Lawyers rates attorneys in more than 70 practice areas that have attained a high level of peer recognition and professional achievement. The annual selection process includes a statewide survey of lawyers, independent research, and peer reviews by practice area.

Ashley Banks concentrates her practice on family law matters, including separation agreements, child custody, domestic violence, equitable distribution, divorce, and post-separation support.

Ms. Banks grew up in Chapel Hill and obtained a bachelor’s degree magna cum laude in political science from North Carolina State University with dean’s list honors. She attended Campbell University Norman Adrian Wiggins School of Law and received her Juris Doctor in 2013.

A skilled advocate for her family law clients, she was named a partner at Younce, Vtipil, Baznik & Banks in 2020. 

About Younce, Vtipil, Baznik & Banks, PA

The law firm of Younce, Vtipil, Baznik & Banks, PA, provides experienced, compassionate, and effective legal representation to people in family law matters and domestic issues. The firm also represents individuals who have been injured in workplace accidents or hurt in other types of accidents. The firm’s attorneys have received honors, including an AV Preeminent rating from the respected Martindale-Hubbell Law Directory. Younce, Vtipil, Baznik & Banks serves clients throughout the Triangle region and across North Carolina from its offices located at 3701 Lake Boone Trail, # 300, Raleigh, NC 27607. To contact the firm, call 919-661-9000 or fill out an online contact form.

 

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How to File a Class Action Lawsuit

When a group of people have been injured in the same way by an unsafe product or defective drug, for example, those injured may find that a lawsuit is better pursued as a class action.

There are some advantages to requesting that the court combine individual lawsuits into a single class action. A primary benefit is that the significant financial costs of preparing this type of lawsuit are shared by multiple law firms.

Many class actions are product liability claims asserting that the negligent design or manufacture of a consumer product or medical device led to numerous people being harmed. These cases require extensive research to prove the design or manufacturing defect.

How Do I Know If My Case Qualifies As A Class Action?

For a single lawsuit to become a class action, there must be multiple lawsuits that make similar claims of negligence against the same defendant.

To handle the cases most efficiently, a federal district court may combine multiple lawsuits into a class action. When a class is certified, the court names one of the plaintiffs and their case as the representative of the class. The representative case moves forward on behalf of the class, and the members of the class share in the results.

The Federal Rules of Civil Procedure allow the courts to combine multiple claims as a class action if:

• The number of similar lawsuits makes it impractical to try them individually
• The lawsuits, or potential class members’ claims, share common questions of law or fact
• The claims of the injured people being proposed to represent the class are typical of the claims of the rest of the class; and
• The representative parties will fairly and adequately protect the interests of the class.

Individuals must decide whether to become members of the plaintiff class. By doing so, they generally relinquish their rights to sue the defendant individually.

Steps To Filing a Class Action Lawsuit

To become part of a class action, you would:

• File a complaint along with one or more other plaintiffs asserting the same or similar negligence and damages against a single defendant.
• Ask the federal district court to declare a class action.
• After the court certifies the proposed class, the class action lawsuit will proceed to discovery, pretrial motions, and, in many cases, settlement negotiations.
• If a settlement agreement is reached, the court must certify it as fair, reasonable, and adequate.
• If the case goes to trial, a judge or jury will determine whether the party being sued is financially liable. If the ruling favors the class, the judge or jury will determine a monetary award to be divided among class members.

If a settlement is approved or an award is handed down, the attorneys and the court will set rules for distributing compensation to class members, including opportunity and requirements to join or be excluded from the class.

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What Questions Should You Ask a Personal Injury Lawyer?

Selecting the right personal injury lawyer to represent you after an accident involves knowing the right questions to ask. You want to choose an attorney who has handled cases similar to your case and who will take the time to understand your needs.

The North Carolina personal injury lawyers at Younce, Vtipil, Baznik & Banks, P.A. help accident victims seek just compensation when someone else is responsible for their injuries and financial losses.

More often than not, we can negotiate better settlements for our clients than they could recover on their own. When you hear about someone suing over an accident, it means the insurance company refused to offer a fair settlement.

If you have been significantly injured in an accident someone else caused, you should speak to a personal injury lawyer. An initial consultation with Younce, Vtipil, Baznik & Banks, P.A. is always free. Below are some of the questions you may consider asking a personal injury lawyer when selecting a lawyer to represent you.

Have You Handled Similar Cases Before?

A prospective attorney should have experience with the same type of accident – car accident, truck accident, slip and fall, dog bite – and with accidents of the same complexity as yours. More complex cases, such as ones with multiple potential defendants or product liability cases requiring extensive research, typically require firms with multiple experienced lawyers and more resources.

Seek a lawyer who has been successful in cases comparable to yours.

Do You See Difficulties with My Case?

A prospective attorney should be forthcoming with you about the strengths and weaknesses of your claim and how he or she expects to overcome any difficulties with the case. A personal injury law firm won’t take a case unless they expect to win it.

Do NOT hire a lawyer who only tells you the positives of your case. Either that lawyer is dishonest, or he/she may be susceptible to being ambushed by the defense. You need an honest lawyer who will be ready for everything.

Personal injury attorneys and their clients work very closely together. You want to work with someone who respects you enough to be forthright with you, listens to you, and responds to your concerns.

How Much Is My Case Worth?

It’s normal to wonder what your case might be worth. However, be wary of any lawyer who promises or even predicts that you will recover a certain amount of money. Early in the case there are too many unknown facts to even estimate the end result. For instance, you cannot assume how well you will heal from your injuries until you have completely finished the healing process. The value of a case is highly dependent on the long-term prognosis of the victim.

What Are Your Fees? Do I Pay Advanced Costs if I Lose My Case?

Almost all personal injury attorneys work on a contingency fee basis. You don’t pay attorneys’ fees unless the attorney recovers money for you through an insurance settlement or court award. If the attorney wins or settles your case, then you pay an agreed percentage of any settlement or jury award, plus expenses.

Personal injury law firms pay the costs of cases up front, and a prospective attorney should stipulate which – if any – case-related costs will be your responsibility in a loss. The North Carolina State Bar requires the lawyer to make the client responsible for litigation costs. Litigation costs include such expenses as medical record procurement costs, expert witness opinions, court reporter fees, court filing fees, deposition fees of doctors, etc.

What’s My Role as a Client?

Firms vary in how involved they want their clients to be. A lawyer should explain what their firm expects in terms of client participation. This is another chance to see whether you and the lawyer you are interviewing are a good fit.

Younce, Vtipil, Baznik & Banks, P.A. will be happy to answer all of your questions about a potential personal injury claim. Contact us in Raleigh, NC at 919-661-9000 or online for your free initial consultation.

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What To Do if You Were Injured in a Car Accident as a Passenger

Passengers can suffer significant injuries in car accidents and may have a right to seek compensation for their losses. This includes seeking compensation from whoever caused the wreck, be it the driver of the other car or the driver of the car in which the passenger was riding if that driver was at fault.

Our Raleigh car accident attorneys at Younce, Vtipil, Baznik & Banks, P.A. stand ready to help you put your life back together if you have been badly injured as a passenger. We can handle the legal issues – from determining fault to demanding compensation for you – so you can focus on your recovery.

If the driver of the car you were in was at fault, you should not hesitate to file an injury claim because of your relationship with a driver who is a friend or co-worker. Your driver will not pay the claim out of their pocket, their liability insurance must pay the claim. If their insurance premiums increase, it will be because they caused an wreck, not because you filed a claim.

Steps To Take If You Were an Injured Passenger in a Car Accident

As a passenger in a car crash, you can protect your rights by:

• Ensuring police are called to the scene. The police report is the first official documentation of what happened. Police will also record insurance information for each of the cars involved. Get a copy of the police report as soon as possible. While the police officer’s determination of fault is not binding on the insurance companies, it is very persuasive. Most of the time the insurance company will go along with the police officer’s determination.
• Getting medical care. A doctor’s diagnosis identifies the injuries you suffered in the accident. The medical records produced by the doctors and therapists are the main way your attorney can prove your pain and suffering. Be sure to follow all doctors’ orders. Be sure to file all medical bills with your health insurance, if you have it.
• Documenting the accident. If you are able, take photos of the accident – the vehicles, their damage, your injuries, other people involved, and anything that may have caused the crash. Save anything connected to the accident in the days and weeks ahead – bills, receipts, correspondence, and reports. Keep a written journal of your medical recovery, including progress and setbacks.
• Being careful with the insurance company. Don’t let an insurance adjuster trick you into downplaying your injuries or suggesting that you were at fault for your injuries. Do not give a recorded statement to an insurance company until you have consulted with an attorney. If an insurance adjuster offers a settlement, you should have a personal injury attorney review it. If you have hired a lawyer, refer all insurance inquiries to your attorney. In the large majority of cases, you should not even consider negotiating your personal injury claim until you have finished getting medical care and therapy.

How Does Insurance Coverage Work for Injured Passengers in North Carolina?

By law in North Carolina, any driver in an accident should have auto liability insurance. This is coverage that compensates people who the policyholder has injured.

In North Carolina the minimum liability coverage required to drive a car is $30,000 for bodily injuries per person or, if more than two people were injured, a total of $60,000 per accident. Liability insurance also has a property damage component for the vehicle damage.

Liability insurance policies sold in North Carolina also provide uninsured motorist coverage (UM). This coverage pays if an individual is injured by a driver who does not have car insurance. The limits of UM coverage are equal to the car owner’s liability coverage unless the car owner opts to buy additional coverage.

A car owner buying auto insurance in North Carolina will be offered underinsured motorist coverage (UIM). This provides coverage if the at-fault driver’s liability insurance isn’t enough to cover injuries suffered in a crash.

If the passenger owns a car that has UM or UIM, and the car in which they are a passenger either does not have insurance or does not have enough insurance to pay the full value of their claim, the passenger’s own car insurance will take over. These situations are complicated and require a detailed discussion with your attorney.

If the driver who caused the accident was in another car, you are covered by their liability insurance and, if necessary, the UM and/or UIM coverage of the driver of the car you were in.

If the driver of the vehicle you were riding in was at fault, you are covered by their liability insurance. If the at-fault driver is uninsured, you may turn to your own uninsured motorist coverage, or the UM or UIM policy of a family member you are financially dependent on.

Is a Passenger Ever at Fault?

You wouldn’t expect that a passenger – a person who rides in a vehicle but does not bear any responsibility for the operation of the vehicle – would be responsible for a car accident. But an insurer might deny liability for a passenger’s injuries if they:

• Seized control of the vehicle, such as by grabbing the steering wheel or pressing the accelerator
• Physically obstructed the driver, such as by covering their eyes
• Distracted the driver
• Rode with a driver who they knew was impaired by drugs, alcohol, or fatigue
• Rode with a driver during inclement weather and/or a state of emergency banning unnecessary travel
• Rode with a driver who was driving recklessly and do not adamantly protest and demand that the driver slow down and drive safely
• Rode with a driver whom they knew was not competent to drive, such as by not having a valid driver’s license

These are important considerations because North Carolina personal injury law operates under a doctrine of pure contributory negligence. Individuals seeking compensation for injuries in North Carolina are not eligible if they contributed in any way to the wreck that caused their injuries.

Insurers could certainly argue that placing yourself in a situation that a reasonable person would recognize as dangerous – such as by riding with an intoxicated driver or engaging in dangerous play such as seizing the wheel was negligence.

The insurance company would have to prove you were negligent, and that your negligence contributed to not just the accident, but your injuries as well. As your attorneys, we would work to minimize the impact of any evidence introduced of your negligence.

Contact Our Raleigh Car Accident Lawyers

You have rights if you were injured in an accident while a passenger in someone else’s car. It costs you nothing to discuss a potential car accident claim with an experienced legal professional. An attorney at Younce, Vtipil, Baznik & Banks, P.A. in Raleigh, NC can review the facts of your accident and discuss your legal options. If we handle your claim, we will deal with the insurers on your behalf and seek the full compensation you need. We are paid only when you receive a settlement or verdict.

Fill out our simple online contact form or give us a call at 919-661-9000 to get free legal advice today.

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How Much Money Can You Seek For Pain And Suffering?

An injured person may demand compensation for their pain and suffering as part of seeking compensation for accident-related losses. Pain and suffering damages reimburse you for the physical discomfort and emotional distress you have endured because of someone else’s negligence.

The question is how much money for pain and suffering is correct in a specific personal injury claim?

In North Carolina there is no fixed formula for placing a value on physical pain and mental suffering regardless of whether you are negotiating with an insurance adjuster or in a trial. At trial, a jury will be instructed to determine what is fair compensation by applying logic and common sense to the evidence. An exception to this is that North Carolina limits all pain and suffering damages awarded in a single medical malpractice case to a maximum of $500,000.

If Younce, Vtipil, Baznik & Banks, P.A. handles your North Carolina pain and suffering claim, we will pursue full compensation for your pain and suffering. We will take the time to understand how your injury has affected your life. Living with pain after a serious accident can limit your enjoyment of life and your future. We’ll present evidence showing the full extent of your losses.

How Is Pain and Suffering Compensation Calculated?

Liability insurance companies base their settlement offers in large part on what juries have awarded in the past when similar facts were presented in court. They keep large data bases on verdicts in all parts of the United States as well as in your local jurisdiction.

Typically, a jury’s pain and suffering calculation begins after calculating economic damages. This includes:

• Medical bills
• Lost income from lost work time
• Travel expenses for medical appointments
• Property damage, such as the cost to repair or replace a vehicle after a car accident
• Miscellaneous expenses attributed to the injury, such as help with house or yard work while recuperating.

When determining compensation for pain and suffering, some juries may base their awards on:

• A multiple of economic damages, often 1 to 5 times compensatory damages, depending on the severity of the injury.
• A per month payment based on the number of months between the accident and full medical recovery, often $1,000.00 per month, depending on the severity of the injury.
• If permanent injury is proven the jury might award pain and suffering for each day, month or year of your life expectancy.

Contact a Raleigh, NC, Personal Injury Attorney

With more than 100 years of experience, the attorneys at Younce, Vtipil, Baznik & Banks, P.A., have developed their practice as a client-oriented law firm that utilizes state-of-the-art case management tools to ensure that clients receive the best representation possible. Our experienced North Carolina personal injury lawyers are committed to providing you with excellent, timely, and compassionate legal service while seeking maximum compensation for your losses.

It costs you nothing to speak with an experienced Raleigh injury lawyer during a free initial consultation. Contact us at 919-661-9000 or online today to get started.

 

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Is a Spouse Entitled to a Workers’ Comp Settlement?

Suffering a severe or disabling injury can put an incredible strain on a marriage. The caretaker burden placed on a spouse and the diminished lifestyle can cause a couple to split up and divorce. What happens then to the proceeds from a workers’ compensation settlement obtained for a workplace injury or other compensation recovered for a personal injury? The uninjured spouse may seek a share of a workers’ comp settlement finalized before the couple separated.

A fight over money meant to sustain a seriously injured spouse can quickly turn a divorce into a heated and heart-wrenching experience. If you find yourself in such a situation, you need to speak with an attorney who understands North Carolina divorce law and can protect your interests during the process of equitable distribution.

Why Divorce Puts Your Workers’ Comp Settlement in Jeopardy

In a divorce, North Carolina law requires an equitable distribution between each party of the couple’s marital assets and divisible property.

• Marital assets are those obtained during the marriage.
• Divisible property refers to assets acquired from the date of separation through the date of your divorce trial.

Separate property is not part of the marital estate and is not subject to equitable distribution. Separate property includes any assets acquired by either spouse before the marriage began or as a gift or inheritance during the marriage.

When determining whether assets from a workers’ compensation settlement may need to be divided, what is crucial is when the injured spouse obtained the settlement and why exactly they were paid out. If a settlement was recovered after the couple married, it is likely subject to division and equitable distribution.

How Is a Workers’ Compensation Settlement Divided in a Divorce?

Workers’ compensation is insurance carried by employers to provide benefits to employees who have been injured on the job or become ill because of work conditions. The insurance benefits include:

• Payment of all medical bills related to the occupational injury or illness
• Replacement of about two-thirds of wages or income lost because of a disabling injury or illness or reduced earning capacity.
• Stipends for specific losses or disfigurement, such as the loss of a leg or facial scarring from burn injuries.

A workers’ compensation beneficiary who has been disabled may receive payment for years or may in some cases opt for a lump sum settlement.

The North Carolina Court of Appeals ruled in Freeman v. Freeman, 421 S.E. 2d 623, 107 N.C. App. 644 (1992) that what must be considered is what the workers’ compensation award or settlement is meant to pay for and when.

Does One Have to Share Workers’ Comp in a Marriage?

Under Freeman, benefits recovered during the marriage should be considered marital property, meaning the uninjured spouse may be entitled to a portion of that money. However, any part of a settlement acquired for medical expenses or other needs expected after the couple separated due to the spouse’s permanent disability would be the injured spouse’s separate property and not subject to division and distribution.

If your workers’ compensation claim was ongoing at the time of your separation, delaying a settlement may protect much of your benefit from designation as marital property. If you already had a settlement, you would need to designate to the satisfaction of the court what portions of the settlement were meant to replace past, current, or future losses. A knowledgeable family law attorney at Younce, Vtipil, Baznik & Banks, P.A., can help you understand how the process of equitable distribution as part of a divorce affects your workers’ compensation settlement or payments.

Let Our Divorce and Workers’ Comp Lawyers Help

Without proper legal counsel, it’s easy to overlook the financial impact of divorce and wind up with a separation agreement that proves costly for years to come. The attorneys of Younce, Vtipil, Baznik & Banks, P.A., in Raleigh know divorce law and workers’ compensation law in North Carolina. We can help you navigate this difficult time. Contact us today at 919-661-9000 or online.

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