No, you do not have to pay taxes on a settlement reward from a lawsuit. The general rule for taxability on settlements received can be found in Internal Revenue Code (IRC) Section 61. This section states all income is taxable unless it is listed as an exemption. IRC Section 104 provides a taxable exclusion with respect to lawsuits, settlements, and rewards.
The IRS views your reward as compensation you’ve been given to be made “whole” after suffering an accident, so there is no tax on any settlement reward. However, there are a few exceptions to these regulations.
Exceptions to Tax-Free Settlements
If you’re rewarded punitive damages, that portion of your recovery can be taxed. Punitive damages are rewarded to accident victims who were harmed intentionally or due to an extreme case of recklessness. Punitive damages are rare in a Walmart slip-and-fall accident case, but they can be rewarded in certain situations.
Another exception to receiving a tax-free settlement is if you receive interest on your award. Interest can accrue while a settlement goes unpaid. Generally, an unpaid principal balance collects 10% or 7% if the debtor owes $200,000 or more or if they’re a government entity, according to the Judicial Branch of California.
Confidentiality Clauses and Settlement Taxation
The confidentiality clause of a settlement agreement may result in unintended taxable income. The reason for this is because tax law states that a personal injury settlements are untaxable when they cover personal injury and emotional damage. This law is unenforceable if a personal injury case contains a confidentiality clause.
A confidentiality clause is a contract provision that prevents parties from sharing sensitive information with third parties without permission, also known as a non-disclosure agreement (NDA). So, if your personal injury case settles with a confidentiality clause, the IRS could say your settlement is taxable because it was for confidentiality, and not for personal injury reasons such as medical bills, lost wages, and emotional damages.
Are Settlements and Judgements Two Different Rewards in a Walmart Slip-and-Fall Accident?
No, out-of-court settlements and judgments handed down by a judge or jury are considered the same thing and are subject to the same tax rules and regulations by the IRS. A legal settlement is an agreement between two parties to resolve a legal claim. A settlement often includes:
- The amount of compensation and any payment plan involved
- A full liability release in which the plaintiff agrees to drop any claims against the defendant
- A confidentiality clause that prohibits either side from talking about the case in public
A judgment, on the other hand, is known as a verdict made by a judge or a jury in a civil court. Both sides are required to present their evidence and arguments in court. Once a judgment is made, the liable party will have a set amount of time to pay the plaintiff. If the payment is not made, then the plaintiff can file a judgment lien on the liable party’s property and assets until the debt is paid.
Are California Walmart Slip-and-Fall Lawyer Fees Negotiable?
Yes, lawyer fees can be negotiable. If you have a straightforward case that is likely to settle quickly, then you may consider lowering an attorney’s fee if there is not much work to be done. However, most slip-and-fall cases are complex because they can potentially involve several liable parties and witnesses, depending on the details of your case. If you decide to negotiate an attorney’s fee, it is recommended to take into account the following factors.
- The likelihood of winning the case: if you have a high chance of winning your case, then your attorney will most likely be willing to negotiate a lower fee.
- The complexity of the case: the more complex your case, the higher the fee can become due to the time and resources required.
- Settlement v. Trial: attorneys can charge a lower contingency fee if the case is expected to settle out of court.
Contact a Walmart Slip-and-Fall Lawyer in California
Fair settlements in a Walmart slip-and-fall case can be difficult to receive. That’s why it is important that to partner with a trusted Walmart Slip-and-Fall Lawyer that takes the time to understand both the factual and legal sides of your case. If you’ve lost confidence in your current representation, or are seeking legal advice for the first time, contact Maison Law today for a free consultation and case evaluation. There are no upfront fees for our services and you will not be charged unless we win your case.
