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Are Damages Subject to Taxes?
Section 104(a)(2) of the Internal Revenue Code excludes from income "damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness." Therefore, whereas compensatory damages are not generally taxable, punitive damages, even in connection with personal injuries, are. Subsection 104(c) provides a narrow exception to the rule of inclusion for punitive damages in a wrongful death action where state law provides the only damages that may be awarded are punitive damages. These rules apply generally to amounts received after August 20, 1996. You can start the process of filing your lawsuit and receive compensation for your damages by filling out the simple form at the end of this page, so that your case may be evaluated.
The term "liquidated damages" means damages for which the amount has been ascertained, either in a judgment or in an agreement. Typically, when a specific sum has been expressly agreed to by two parties as the amount of damages to be recovered in case of breach of an agreement, the sum is referred to as "liquidated damages."
Punitive damages are awarded to punish or make an example of a defendant based on outrageous conduct. Punitive damages are awarded in addition to compensatory damages for actual monetary losses. Because of the nature of punitive damages, they will not be the equivalent of wages on account of employment and consequently are not subject to FICA taxes.
Act Now! It is essential that you inquire about your lawsuit as soon as possible. Litigation may be the only way to receive the damages to which you may be entitled, such as medical and health care bills, lost or diminished wages, and financial compensation to family in the case of death. Your individual state's law may limit your time to bring a legal claim to protect your rights. You need to have your claim evaluated immediately!
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