When you are injured in a traffic-related accident, you might be entitled to recover money for your losses and injuries. Depending on the facts of your case, the amount could be substantial, and the amount could include compensation for future damages and permanent disability. While most types of compensation are not taxed as income, there are exceptions. In some cases, you may be required to pay income tax on part of your settlement amount.
Medical Expenses and Bills: You are entitled to be reimbursed for the medical bills and expenses for the required and reasonable medical care you received because of the injuries sustained in your accident. In most cases, you are not taxed on this compensation. However, if you claimed the medical expenses on your tax return, you may be required to pay taxes on this portion of your settlement claim.
Physical Pain and Suffering: You might be entitled to compensation for the pain you endure because of the injuries caused by the traffic accident. For most cases, if you can show that the pain and suffering were caused by the physical injuries or physical sickness sustained in the accident, you do not need to pay taxes on this amount. The IRS does have exceptions, so you want to consult with an experienced Erie car accident attorney before accepting a settlement.
Emotional Distress and Mental Anguish: Compensation for your stress and anguish may not be taxable if the stress and anguish are related to the physical injury or illness caused by the crash. However, when you file a claim for distress and anguish without a corresponding physical injury or illness, your settlement may be subject to income tax.
Property Damage: In most cases, the settlement is not taxed except in limited cases when the amount exceeds a specific value. Since most property damage claims are for the fair market value of the vehicle or the cost of repair, income tax does not apply very often to the property damage portion of an accident settlement.
Loss of Income: If you are out of work because of a car accident, you might receive compensation for your lost wages. The IRS considers this taxable income in most cases because it is replacing income that would have been taxable had you not been injured in an accident.
Punitive Damages and Interest: Interest and punitive damages are not common for most traffic accident claims. If these damages are compensated, the money is considered taxable income by the Internal Revenue Service.
Do You Need More Information?
Determining whether an accident settlement is taxable can be difficult and complex. You can obtain more information from the Internal Revenue Service. You can schedule a free consultation with our Erie car accident attorney. We can help you with your claim to try to minimize the amount of compensation subject to taxes.
In some cases, the wording of a settlement agreement can greatly impact whether you pay taxes on the money you receive. If an insurance company has offered you a settlement for your claim, contact our office for a free consultation to discuss your claim before you accept a settlement.