The question of whether that is settlement money taxable is one that has been on the lips of many people who have been embroiled in lawsuits or know the legalities of one. After all, you might win a good amount of money from the case but would hardly want to lose half of it in the payment of taxes. This question has taken different shapes and forms over the years, but many people still get confused about the correct answer to it. The truth is that whether or not tax is applied on it depends entirely on the sort of case that you were a part of, with some of them providing tax-free settlements and some being taxable.
The simple answer to the question of is settlement money taxable is that it escapes the taxman only and only if the structured settlement is for a severe personal injury case. Anything else has to go through the rounds of the tax forms and will have an amount sheared off to be paid as tax. You might have been involved in a car accident, which resulted in you ending up in the hospital. From the settlement, a part will be allotted for your recovery and hospital bills, and that part will be non-taxable, while the rest, which might be used for car repairs and the sort will be taxed as needed and seen fit.
There is obviously a way for you to avoid paying taxes on your settlement. However, the way out, which is in the form of a structured settlement, will result in you receiving the money in monthly parts, and not as a whole. While this may see you lose out on getting everything at once, it lets you get them rationed for you and have the whole without losing any to taxes. This quite simply not only provides an answer to the question of whether settlement money is taxable but also provides a rather simple solution to the problem.
Should I Take A Lump Sum Instead?
For the people who might be in the midst of a lawsuit after an ordeal, this is an important point to consider. Getting a huge payout and then losing most of it isn’t the most favorable scenario, and opting for a structured settlement might be the smarter choice to make, especially if you eventually want to end up getting the whole. Unless it’s a personal injury case, settlement money is taxable, whilst in the case of an accident or anything that causes harm to you, it isn’t.
Having the knowledge of exactly what you are doing is rather important, and hopefully, the answer to the question of whether or not settlement money is taxable is one that fits your needs. A structured settlement is a good way to go, but if you want a lump sum at once, be prepared to pay out some to the tax collectors. The rest of it, of course, comes directly to you. Remember these before you get into a lawsuit and imagine the payments.