If I Receive Pre-Settlement Funding, Is It Considered Taxable Income?
You may be in a personal injury lawsuit if you’ve been seriously injured due to another’s negligence. However, you’re often also prevented from working, which puts you and your family in a precarious financial position. If this happens to you, applying for pre-settlement funding is a relatively easy and safe way to solve this dire financial problem.
However, the question arises, what type of tax liability am I incurring by obtaining these pre-settlement funds?
The good news is that, in most cases, the IRS does not count pre-settlement funding as income. Therefore, you are not required to report your cash payout as income if you apply and receive a pre-settlement funding loan. Accordingly, since pre-settlement funding is not considered income, all the funds you receive from your experienced and reputable funding company are not taxable. You do not need to report it on your tax return.
Simply put, you should never have to pay taxes on pre-settlement funding as it’s considered an “advance on your lawsuit” settlement or jury award, not wages or income.
There are some (but few) exceptions to this generality; however, you should have your thorough and detailed funding company analyze the entirety of your financial picture and the IRS tax codes on lawsuit awards and general funding.
All-in-all, however, the majority of the time, you won’t incur any tax liability by receiving the pre-settlement funds you and your family desperately need now.
What Are Some Examples of Non-Taxable Use of My Pre-Settlement Funds?
As personal injury claimants, it is rare for you to seek pre-settlement funding to fund a new business venture or investment. So, if you are not doing these things with the funds, you are not creating any tax liabilities.
That said, there are numerous, necessary, and essential ways to use this money to get through this challenging time, such as:
Paying your new and mounting medical bills.
- Buying expensive medical equipment, you need in your home to treat your injury.
- Repairing any of your damaged property, such as a vehicle.
- Groceries and other necessities for you and your family.
- Gas money, household bills, etc.
- Monthly rent or mortgage payments.
If you are spending your needed pre-settlement legal funding this way, it won’t be taxed as income. If you have any concerns about what you can use this money for or the surrounding taxation in your state, consult your personal injury lawyer and your pre-settlement funding company about the matter. By speaking with a lawyer, you will always get the correct and knowledgeable answer that you need.
Will Pre-Settlement Funding Help to Reduce My Final Settlement Taxable Income?
This matter can be a confusing and complex question and should be discussed thoroughly with your lawyer and the reputable, well-known funding company you are working with.
First, in most cases, your final settlement and judgments may have tax consequences as put forth by the IRS tax codes. Remember, we are discussing your final settlement funds, not pre-settlement funding.
So, what are the steps, and how is your lawsuit’s final settlement paid? The following are some of the things that occur when your settlement is paid out, they usually are:
- Signing documents or release forms – You will be asked if you agree that the settlement amount is accurate and could also be asked to sign an NDA and other documents.
- Once all forms are signed, your check is released by the insurance company.
- Your personal injury lawyer usually pays off any outstanding bills or liens against you, such as medical expenses, your pre-settlement funding loan as contracted, etc.
- The legal representative takes their agreed amount and pays off any legal fees or court costs.
- You, as the plaintiff, are issued a check for whatever is left.
- At the end of the tax year, you get a 1099 and must file taxes, including your lawsuit settlement or judgment.
You must keep in mind that you already received a pre-settlement funding amount, a bill you must pay upon final funding, but also reduced the final amount of your settlement check. Accordingly, the final money you receive may be taxable but is reduced by your non-taxable pre-settlement funding amount.
Also, there are other ways to reduce your tax liability on the final settlement amount, which should be thoroughly discussed with a reputable financial advisor or CPA. However, in many cases, any money you receive before your final settlement may help you with tax liability, but each case differs.
How Will Pre-Settlement Funding Help My Family’s Financial Crisis?
When you are injured, your whole life may be altered temporarily or permanently. Bills mount up quickly, and your current bills may fall to the “back of the line” in deference to pressing medical expenses.
This is why pre-settlement funding can be a wise and viable way to get at least some, if not all, of the money you have coming to you without all the unnecessary wait time and without tax liability in most cases.
These are some common everyday dire financial situations that could be remedied by taking a pre-settlement advance from your lawsuit:
- Pay off any current legal fees.
- Make sure your mortgage or rent doesn’t lapse.
- Home improvements you may need to make due to your injury.
- Pay for medically required medical treatments.
- Keep your credit cards, utilities, car payments, etc., current.
- Pay college tuition and much more.
If you have a pending lawsuit, don’t stress over outstanding bills, as pre-settlement funding could be the right choice for you and your family.
Also, insurance companies always want to pay you the lowest amount possible and in the quickest amount of time. You might be pressured to accept a “lowball” offer if you have outstanding bills and financial hardship. Pre-settlement funding gives you the “breathing time” you need.
Working with a proven and reliable Pennsylvania pre-settlement funding firm will allow you to “hold out” until your case is settled and get the compensation you rightfully deserve.
I Have a Pending Personal Injury Case, But Need Funds Now; What Should I Do?
Your personal injury lawyers will tell you that a detailed and winning personal injury lawsuit is never a rapid process. Settling quickly actually is usually detrimental to you and your family.
If you can’t work, most families cannot survive months without the income they’re used to receiving. The professionals at Universal Funds have been helping myriad families get through this extraordinarily challenging time. So, discuss all options with your lawyer and call Universal Funds today at (484) 924-9323 to discuss your case’s details and determine the pre-settlement funds you need to survive.
Your recovery is paramount to your and your family’s future. Do your research, but most families find that working with Universal Funds provides the welcome relief you need from financial stress and financial ruin.