When a car accident has left you on shaky financial ground, you might need every penny of the compensation you are owed. An important aspect of your case is the amount you end up with after taxes. Read on for a better idea of what to expect when tax time rolls around and you are the recipient of a personal injury settlement or judgment.
If you have received money as a result of an accident, consult with a tax attorney for a full understanding of your tax obligations. This article is meant to provide accident victims with a general idea of what to expect and every personal injury case and tax situation is unique. The question of whether or not the monetary gains provided as a result of an accident depends on the reason you were paid. Personal injury compensation is not based on just one form of damage – your case might be made up of several different categories of damages. To find out about how taxable the compensation might be, take a look at some common personal injury damage categories and how they might be taxed.
Medical Treatment – Regardless of how your medical expenses are paid, you should not be taxed for the funds that went to pay them. However, some accident victims end up having to cover some medical expenses themselves and use that expense as a deduction on their taxes. If you are then reimbursed those funds as a result of a case, you may need to file an amended return and pay back any tax savings
Pain and Suffering – This category covers the way your physical injuries have negatively affected your life in general and is usually based on the amount of your medical expenses. The award for this category might be, for example, three or more times the total dollar amount of your medical expenses.
May be Taxed
Interest – If your case ends up going to trial and you win a judgment against the other driver, you might be awarded interest on top of the award. Since some cases can drag on, the interest might be substantial.
Lost Wages – Since this reimbursement is meant to replace your (taxable) income, it is taxed just like your salary would be.
Punitive Damages – In some cases, the judge decides that your case merits extra money damages to punish the other driver with the hopes it sends a message to other careless or negligent drivers. For example, if the other
Speak to a car accident attorney to find out more.