Are Car Accident Settlements Taxable?
If you were injured in a car accident, you probably filed a personal injury claim and, with the assistance of a skilled attorney, obtained a much-deserved settlement. Now that you have been compensated for your injuries and other costs associated with your accident, you might be wondering if it is taxable. The short answer is, no, generally car accident settlements are not taxable. However, as is the case with most things in life, there are some exceptions to this general rule.
If you received a settlement for either personal physical injuries or physical sickness and you did not take an itemized deduction for medical expenses related to it in prior years, the full amount of your settlement is non-taxable and you should not include it in your income.
When Your Settlement is Taxable
Whether or not your settlement is taxable will depend on the reason for the payment. Was it to offset lost wages, replace or repair damaged property, cover medical costs, compensate you for pain and suffering, or to punish the wrongdoer? If you received compensation for lost wages, this portion of your settlement will be taxable. Why? Wages are taxable, so the wages you would have earned are taxable as well.
When it comes to pain and suffering, your awarded compensation is generally not taxable, unless your pain and suffering is classified as emotional distress. For example, if you were injured in a car accident and, as a result, are now afraid of driving, the compensation for your newly developed anxiety disorder would be taxable. Emotional distress that results from a physical injury, on the other hand, is tax-exempt.
That said, there are ways to create a settlement that impose little to no tax obligations. Consult with a skilled trial lawyer to assist you in ensuring your settlement is structured in a way that effectively reduces this financial burden.
Personal Injury Attorney in Savannah
If you were injured in an accident caused by another party’s negligence, you need to seek skilled legal representation as soon as possible to maximize compensation and reduce the possible tax burden sometimes associated with compensation. At Brooks Law Office, our compassionate team of Savannah attorneys has over 35 years of professional experience. We spend quality time with each and every one of our clients to help create a solid claim for a settlement.
Contact our office today at (912) 348-5188 to schedule a free consultation. You should not have to go through this difficult time alone.
SEO Meta DescriptionIf you were injured in an accident that was caused by someone else’s negligence, you need to seek skilled legal representation as soon as possible to maximize compensation and reduce the possible tax burden occasionally associated with compensation. At Brooks Law Office, our compassionate team of Savannah attorneys has over 35 years of professional experience