Vehicle accidents can be utterly devastating in any number of ways. Not only do you have to deal with medical costs and ongoing pain and suffering, but your entire life can be turned upside down as you just try to make ends meet and stay solvent while you get well. A settlement for damages can go a long way towards this, but additional stress arises when people wonder if they have to pay taxes on the settlement.
Here’s the good news: in general, your settlement isn’t going to be taxable. This isn’t the case 100 percent of the time, however, and the exact nature of the settlement can play into the picture. Learn whether or not you’ll have to pay taxes on the accident settlement you get, and when to call on the services of a car accident lawyer for help.
Your Settlement and Tax Codes
Under the IRS tax codes, most damages you receive for physical injuries or physical sickness are not taxable. While emotional distress is not generally considered a physical injury or sickness, it can be considered as related to physical injury or sickness, which excludes it from the definition of income — meaning, it’s not taxable. Damages for medical care are also excluded.
There are two types of damages you’ll usually get in a settlement: compensatory damages and general damages. These are what compensate you for lost medical expenses, pain and suffering and the like. These damages are generally not taxable. Likewise, money to pay you back for lost property is not taxable.
Awards that can be taxable is compensation for lost income. Since this money is meant to cover the income you normally would’ve earned during work, it is subject to income tax. In general, then, any income that would have been taxed had it not been a damages award, is still taxable.
Punitive damages are rare, but they are sometimes awarded. Their intent is solely to punish the defendant for their gross negligence. Most often, they’re awarded in DUI accidents or as the result of malicious intent. Punitive damages are different than other forms of compensatory, special and general damages. Since they’re a sort of “add-on” meant to punish someone and deter them from doing something that egregious again, the IRS views them as a bonus to your award.
Because of this, punitive damages are almost always taxable.
Working with a Car Accident Lawyer
If you’ve been in an accident and you need help getting compensation for the injuries you’ve suffered, it’s important to call a qualified car accident lawyer. Your attorney can help you to get the best chance of achieving a significant award.
A car accident attorney like those at Disparti Law can give you basic advice about whether or not your earnings will be taxable, though, for information regarding the specifics of taxable income, you should speak to your tax professional to be sure you’re completely covered. In order to get the maximum compensation for the injuries you’ve suffered, however, including pain and suffering, medical bills, lost wages and lost quality of life, an attorney can help. Give us a call for a free consultation today!