Winning a court case and getting a settlement in Pennsylvania is a victory, but you may want to wait before celebrating. The reality is that this money may not all be yours to do with as you please. You may owe the government a nice chunk in taxes. There are specific rules for taxation on settlements, so you should familiarize yourself with them so you know if your settlement is taxable.

Forbes notes that many settlements are not taxable as long as they are solely for physical injuries. However, if the judge granted you punitive damages, then you are looking at paying some taxes. You will also probably have to pay taxes on the attorney fees you pay. The IRS treats a settlement as 100% your money if your attorney works on a contingency basis, which means you pay full taxes on it.

If you get a settlement for lost wages from an employer, then the IRS sees this as wages and you get taxes accordingly. Also, emotional duress, if included in your settlement, is also taxable. This is a little confusing because sometimes physical injury and emotional duress are linked, so the IRS will look at your case carefully to determine which part of your settlement is taxable.

You will get a Form 1099 if you must pay taxes on your settlement, but you will not see this until closer to tax time. So, it is important to understand what is taxable and what is not so you can set aside what you will need to pay taxes.