A traffic accident can be devastating. Injuries sustained in a crash can leave you with high medical bills and significant loss of income. Even if you have minor injuries, the property damage, lost wages, and medical bills can quickly add up. If the accident was not your fault, you have the right to pursue a claim against the driver or another party responsible for the collision. The law provides a way for you to recover compensation for your damages, including the physical pain and emotional suffering caused by the crash.
PAYING INCOME TAXES ON AN ACCIDENT SETTLEMENT
One of the issues that many of our clients face when they settle a vehicle accident, including accidents involving cars, bicycles, trucks, pedestrians, and motorcycles, is whether they must pay income taxes on the money they receive. Below is a short explanation of the issue of taxes on settlements. We urge you to call our office for more information because your claim may be different from the “typical” case.
INCOME TAXES ON MEDICAL BILLS
When you incur medical expenses from an accident caused by another party, you are entitled to be reimbursed for those expenses. Compensation for medical expenses is typically not viewed as taxable income. An exception may apply if you claimed the medical costs on your income taxes for a tax benefit.
INCOME TAX ON LOST WAGES
Lost wages are treated a bit differently from medical bills. If you had not been injured and earned your wages, they would have been taxable income. Therefore, most settlements that include compensation for loss of income are taxable. However, only the portion attributed to the loss of income would be taxable. Since every claim is different, we recommend contacting our car accident lawyer for a free consultation.
INCOME TAX ON PHYSICAL PAIN AND EMOTIONAL SUFFERING
When a negligent driver injures you in a car accident, you suffer noneconomic damages in addition to the financial damages. Noneconomic damages are referred to as your “pain and suffering” damages. In a settlement, the amount paid for your physical pain or illness is not considered taxable income. In many cases, the amount paid for your emotional suffering and stress is not taxable. However, if your claim only is for emotional stress and mental anguish without a corresponding physical injury, the compensation may be viewed as taxable income by the IRS.
INCOME TAXES ON PROPERTY DAMAGE
If another driver causes the crash, you are entitled to receive compensation to repair your vehicle. In cases in which the vehicle is totaled, you are entitled to recover the fair market value of the vehicle. In most cases, the IRS does not tax property damage settlements. One exception is when a person receives a settlement for more than the market value of the vehicle.
INCOME FOR PUNITIVE DAMAGES AND INTEREST
Punitive damages and interest are rare in vehicle settlements; however, when they are included, they are considered taxable income. Interest is usually paid on judgments from the date of the judgment until the judgment is paid. Punitive damages are intended to deter willful, wanton behavior and gross negligence and “punish” the defendant for acting without regard for the safety of others.
CALL A TEXAS CAR ACCIDENT LAWYER ATTORNEY
We want to help you receive the maximum amount of money available for your claim. Our car accident lawyers understand the tax implications regarding settlements. We take every step possible to protect your settlement proceeds while following the law and protecting your best interest.
Call Bandas Law Firm, P.C. at (361) 238-2789 for a free consultation at your convenience 24/7. You may also contact our office by using the contact form on our website. Our office is in Corpus Christi, but we help individuals throughout the United States.