Are Car Accident Settlements Taxed?
Going through a car accident is already a process, but if and when you need to get a settlement, it’s important to know what to do with the settlement money and if it is taxable. It’s easier to worry about that in the beginning than it is later. Here are some tips.
Very rarely are they taxable, though they are some exceptions according to the Internal Revenue Service (IRS).
If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.
Although, there are times when the compensation IS taxable. Depending on how the settlement was laid out and what took place in the interactions for negotiation between you and the other driver involved who has injured you. Talking about tax considerations during these times is imperative for you to get the most money back as possible. Having the right lawyer to know when to bring up and how to get you the most in return in especially vital so you do not have to worry about possibly missing something during the initial conversations.
Having your settlement be eligible for taxes mostly relies upon the reason for the payment to offset 4 main categories.
- Lost wages which might look something like $5,000 this is true if you have had to miss work, or work less in result of the injury.
- Replace or repair your damaged vehicle/property. If you had to get something fixed, or need to, or if it is unable to be fixed.
- Cover your medical costs. Always go see a Dr. and get checked out after a car accident. Medical bills could be another $10,000 that you put down as a cost to you in result of the accident that the other driver is responsible for.
- Compensate you for your emotional stress. For your pain and suffering. It takes a toll to get hurt, lose work, have damages, and still maintain a healthy disposition. This can be a really tough experience to have to go through and you can essentially hold the other driver for accountability and you could potentially receive more money. That price your lawyer will help you with and the total cost will include all numbers. If you ask for $15,000 for pain and suffering this will leave you a total of $30,000.
Each of these can be broken down into when a tax is likely to be applicable and mostly that it is very rare that it is. Most medical is NON-taxable, but there is an exception for prior years deductions that can be taxed. If that sounds like it may apply to you, tell your lawyer. Emotional distress and pain and injury are considered to be different. Pain and injury in result of the experience and accident cannot be taxed; but if you were NOT injured but now have a fear of driving, that would be taxable.
There are many things can can come up, and things you might not know or miss. Make sure the right lawyer is representing you and call Schenk Podolsky Attorneys at Law. Each state will vary when it comes to your rights in accidents and settlements.