Results 1 to 5 of 5
  1. #1
    Join Date
    Jun 2015
    Posts
    7

    Default Do You Pay Taxes on a Personal Injury Award

    Our 21 y/o child was involved in a motor vehicle accident and will be getting a significant settlement. We would like to have it signed over to us. We are still supporting this child and 2 young children. Therefore, we feel is should go back into family funds and our child agrees. How can we avoid the IRS taxing the settlement?

    Thanks

  2. #2
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: How Do You Avoid Paying Taxes on Bodily Injury Settlement Awarded to an Adult Chi

    Quote Quoting rangers1
    View Post
    Our 21 y/o child was involved in a motor vehicle accident and will be getting a significant settlement. We would like to have it signed over to us. We are still supporting this child and 2 young children. Therefore, we feel is should go back into family funds and our child agrees. How can we avoid the IRS taxing the settlement?

    Thanks
    Your “child” at age 21 is an adult. Therefore, there is no legal concept here of “family funds” that would help with the taxation of the award. To the extent the settlement he receives is compensation for a physical injury, it is not subject to income tax. If his award includes payment for lost wages, punitive damages, etc, he may have income tax to pay on that. So, the details of what the settlement is compensating him for matters.

    If he gives the settlement money to you and your spouse, that is gift to each of you. He may give to each of you up to $14,000 in total gifts during the year without any gift tax to be paid and no requirement to file a federal gift tax return. However, if he makes gifts totaling more than $14,000 in any one year to someone, the amount over $14,000 is known as a taxable gift and he’d need to file a federal gift tax return, Form 709. The unified credit against federal gift and estate taxes stands at $5,430,000 currently. That means any taxable gifts he makes will first reduce that credit. Only once he makes taxable gifts over his lifetime that exceed the unified credit will he have any gift tax to pay.


  3. #3
    Join Date
    Jun 2015
    Posts
    7

    Default Re: How Do You Avoid Paying Taxes on Bodily Injury Settlement Awarded to an Adult Chi

    Thank you for replying! Just want to make sure I have this right. Any gift in excess of $14,000 is taxable but to the giver not the recipient. In this case, the giver must file a federal gift tax return, Form 709. However, they will only pay gift taxes once they hit the $5,430,000 lifetime cap on gifts. Is that correct?

  4. #4
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: How Do You Avoid Paying Taxes on Bodily Injury Settlement Awarded to an Adult Chi

    Quote Quoting rangers1
    View Post
    Thank you for replying! Just want to make sure I have this right. Any gift in excess of $14,000 is taxable but to the giver not the recipient. In this case, the giver must file a federal gift tax return, Form 709. However, they will only pay gift taxes once they hit the $5,430,000 lifetime cap on gifts. Is that correct?
    Essentially correct, yes.

  5. #5
    Join Date
    Jun 2015
    Posts
    7

    Default Re: How Do You Avoid Paying Taxes on Bodily Injury Settlement Awarded to an Adult Chi

    Many thanks!

    1. Sponsored Links
       

Similar Threads

  1. Traffic Accidents: Whether to Settle an Injury Case or Retain a Personal Injury Lawyer
    By Dulce in forum Accidents and Injuries
    Replies: 5
    Last Post: 11-13-2014, 06:53 PM
  2. Other Injuries: Value of Personal Labor in Damage Award
    By Cosmic Zamboni in forum Accidents and Injuries
    Replies: 6
    Last Post: 06-10-2014, 01:00 PM
  3. Traffic Accidents: Personal Injury Lawsuit With No Report of Injury at the Time of the Accident
    By jackson994 in forum Accidents and Injuries
    Replies: 1
    Last Post: 04-18-2014, 12:49 AM
  4. Taxes on Personal Injury Settlements
    By elle23 in forum Tax Law
    Replies: 2
    Last Post: 04-10-2010, 07:29 PM
  5. State Taxes: Taxes On A Personal Injury Settlement
    By golden in forum Tax Law
    Replies: 3
    Last Post: 04-09-2007, 01:57 PM
 
 
Sponsored Links

Legal Help, Information and Resources