You have received an amount in compensation in the past year, or perhaps before that. Suddenly you receive a call for tax returns in the mail. You weren’t expecting that! How do you deal with this? Do you have to declare the amount that you have received in damage compensation in the tax return? We answer six frequently asked questions for you!
6 questions about compensation and tax returns
You have sustained a personal injury and have received damage compensation for it. That’s wonderful! It allows you to focus on your recovery without worrying about the costs involved. But you may be wondering what the compensation will mean for your taxes.
1. Do I have to declare the compensation received as taxable income?
No, you don’t have to. Here’s the thing: the amount you receive in compensation is not income. It is a reimbursement of costs incurred and can therefore not be considered profit. So no tax is charged on this. And what about compensation for pain and suffering? This is also a compensation and is not counted as profit. So you do not have to pay tax on this.
2. Are there any damages that I may have to pay tax on?
While you were recovering from the accident that left you injured, you may not have been able to work for a while. And maybe you are still not working (at full capacity). You should have received compensation for this loss of income. Technically, this is your income and you might have to pay income tax on it.
- However, this compensation, like all other compensation, is paid net.
- This means that you do not have to declare this to the tax authorities and do not have to pay tax on it.
- Should any problems arise, you should contact your representative or the insurer that paid out the damage to you.
- After all, you received this compensation net, so it would not be reasonable if the tax authorities could take a chunk out of this compensation.
3. Where do I declare the compensation in my tax return?
You report all of your assets in Box 3, so this includes the amount you received in compensation. In Box 1, your income, you do not have to enter the compensation!
4. What if the tax authorities still tax my compensation?
The tax authorities may still levy tax on the amount you receive in compensation, especially if it concerns a temporary loss of income. However, any good representative takes this into account when applying for compensation.
How?
- By requesting a tax guarantee.
- As a victim, you then retain the right to contact the counterparty’s insurer again if your compensation is still taxed.
- The latter is then obliged to either contest or pay the levy.
5. What if the accident took place (a long time) in the past?
Perhaps the negotiations on the compensation took a very long time, or for whatever reason, you waited a while before holding the other party liable. If the accident that caused you personal injury happened in the past, you may be wondering what year the compensation belongs to. After all, it may be compensation for expenses that were incurred a long time ago. Fortunately, you do not have to declare the compensation in your tax return. Thus, it does not matter in which year the accident took place.
6. What if my assets exceed the exemption limit as a result of the payout?
The amount you receive in compensation is net. However, if your capital exceeds the exemption limit as a result of this compensation, then you do have to pay wealth tax on this. After all, you must declare to the tax authorities how much money you have in your (savings) account.
Compensation without unexpected surprises
When you have a good representative, he or she will take the above issues into account. He or she will always ensure that you receive a tax guarantee with your compensation. Your representative also ensures that any consequences of the amount for your assets and wealth tax are included in the compensation calculation.
The lawyers of Juridisch Bureau Letselschade & Gezondheidsrecht have many years of experience with cases like yours, and will always consider the above matters when calculating your compensation. This way you will never be faced with unexpected surprises! Click on paying taxes on compensation for more information.
Swift, decisive, and expert
Having your case taken on by JBL&G means a swift, decisive, and expert settlement of your damages. And it is always free of charge for you! If you contact us now through the contact form, you will be contacted by one of our lawyers on the same working day.
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