Are Punitive Damages Taxable?

Paying your due taxes isn’t just a civic duty for every citizen but also a legal requirement. While many people abide by this, they’re also likely to have challenges determining what constitutes taxable income and what doesn’t. This article aims to help you understand punitive damages and whether you must pay taxes on them if this type of financial compensation is awarded to you following a civil lawsuit.

Are Punitive Damages Taxable in Nevada?

Punitive damages are usually taxable in the state of Nevada and at a federal level. Plaintiffs who received punitive damages can report them as “other income” on Form 1040, line 8z, Schedule 1. The one major exception is when juries award punitive damages in wrongful death claims. This is mentioned in section 104(c) of the tax code. In other words, survivors of the victim in a wrongful death civil lawsuit aren’t taxed for the punitive damages they receive for the loss and harm they’ve suffered due to the defendant’s reckless and ill-intentioned actions and behavior.

According to Nevada law, a jury determines whether a defendant should pay punitive damages. A separate proceeding will determine the amount due if they do decide to award you punitive damages. The defendant’s actions and intentions are the only relevant elements when determining that amount, as punitive damages aren’t proportional to the damage caused to the plaintiff. This is because the objective isn’t to compensate the victim. The purposes of punitive damages may be:

  • To punish the defendant: Although defendants who lose civil cases don’t go to prison, a jury can punish especially reprehensible actions by ordering them to pay substantial punitive damages.
  • To motivate the defendant to change their behavior: When the defendant’s actions indicate a behavioral pattern, a jury may reward punitive damages to deter them from behaving that way again.
  • To act as a general example for society: Another reason for awarding punitive damages is to prevent others from practicing the same harmful, reckless, or negligent behavior.

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How Do Compensatory Damages Differ From Punitive Damages?

Punitive Damages

Compensatory damages represent the money the defendant owes the plaintiff due to their actions. Unlike punitive damages, which are a form of punishment for the defendant, compensatory damages are a way of compensating the plaintiff for the various losses they experienced as a result of something that the defendant did. For this reason, the amount that the defendant must pay in compensatory damages is usually calculated based on concrete evidence. There are two main types of compensatory damages:

  • Economic damages: These are ways of compensating the plaintiff for the material costs that resulted from the defendant’s actions. They can include medical expenses, property damage, any income losses due to the plaintiff’s inability to work because of the defendant, losses in profits that a business suffers due to the defendant’s actions, and various other expenses that occurred as a direct result of the defendant’s actions.
  • Non-economic damages: These are compensations for damages that can’t be directly quantified, such as physical and emotional pain and suffering, a loss in the ability to enjoy some or all of life’s pleasures, permanent physical scarring, loss of reputation, and other subjective losses that the plaintiff suffered as a result of the defendant’s actions.

Compensatory damages may be taxable or not, depending on their nature. Suppose you receive compensation for physical damages, such as medical expenses or other material costs. In that case, it’s not taxable income because the money covers your incurred losses. However, if you receive compensation for less tangible injuries, such as slander, harassment, or emotional distress, it may be taxable. If your emotional distress resulted from a physical injury, it’s less likely to be taxable. These issues can be complex, so speaking with a specialized attorney or tax professional for further guidance is advisable.

How Can an Attorney Help You Get Punitive Damages in a Civil Lawsuit?

If you’re involved in a civil lawsuit as a plaintiff, your attorney can be essential in convincing the jury to award you punitive damages. Our attorneys at De Castroverde Criminal & Immigration Lawyers have extensive experience in civil cases. They can help you get compensation for the physical injuries, material losses, and emotional distress caused by someone else’s reckless and ill-intentioned actions and behavior. Some of the ways in which we can help you are:

  • By determining there’s a basis for receiving punitive damages: An experienced attorney can refer to similar cases where the defendant’s actions and behavior made it just that they pay punitive damages to the defendant.
  • By gathering the necessary evidence to support the plaintiff’s case: Multiple types of evidence, such as witness testimonies and expert analyses, can help demonstrate that the defendant is liable to pay punitive damages for their actions.
  • By using the gathered evidence to construct a persuasive argument: The attorney can use the available evidence to build a compelling argument and convince the jury that awarding punitive damages to the plaintiff is a just and positive outcome for the plaintiff and society.
  • By negotiating a potential settlement deal: In some situations, the involved parties can negotiate a settlement that includes punitive damages and avoid going through a lengthy and emotionally challenging trial.

De Castroverde Criminal & Immigration Lawyers Can Help Your Punitive Damages Claim

If you’ve been a victim in a situation in Nevada that you believe may warrant that you receive punitive damages, please consider contacting our team at De Castroverde Criminal & Immigration Lawyers, and we can help with your claim. Our team of skilled lawyers will carefully examine your case, consider all possible legal avenues, provide you with clear explanations, and construct a solid argument to ensure you receive the maximum compensation possible.

Photo Credit: Image by Geron Dison is licensed with Unsplash License