If a person is injured as the result of a car accident, there are most likely grounds for a personal injury lawsuit against the other driver to compensate for medical expenses related to the injury. If the case is won, the funds are dispensed to the injured party, either as a lump sum or in regular payments. This is called a settlement and regardless of how the funding is granted, the question often arises as to whether or not this money is taxed or if it needs to be declared on one’s yearly taxes.
For the most part, a car accident settlement is exempt from being taxed. This is primarily because a settlement following a personal injury case is not truly income, but rather is the compensation for medical expenses that have already been paid. Furthermore, the amount that is granted in a settlement is meant to cover those medical expenses and taking tax money out of that would render it insufficient. Similarly, you would not need to declare a car accident settlement amount on yearly tax filing.
That being said, there are some exceptions to this rule and certain aspects of the settlement that may indeed be taxable. Firstly, any part of the settlement that includes lost wages is taxable, appropriate up to the amount that one’s normal income would be taxed had the hours been worked rather than lost. Additionally, stipulations in a settlement that include compensation for intangible things, such as pain and suffering, are usually taxable. Laws regarding those charges vary from state to state.
If you are looking to pursue a personal injury case and want to be sure that you get the most out of your settlement, it is highly recommended that you consult with an attorney who is skilled, knowledgeable, and can guide you through the legal process. To learn about how we at the Franco Law Firm can serve you in this way and to schedule a free consultation with us today, please call (813) 872-0929.