The way car accident settlements cases are portrayed in the media can be misleading. Most people simply assume that the settlement is paid out shortly after filing a car accident claim. What plaintiffs quickly realize after filing a claim is that the entire process is filled with nuances and twists and turns they did not expect. One of the most common questions we get is about taxes on settlements.
Dan Zohar is Tampa’s leading personal injury attorney with more than 30 years of experience in negotiating settlements in personal injury cases and thousands of cases just like yours. Today, we are sharing everything you need to know about car accident settlements and taxes.
What do car accident settlements cover?
Before diving into the details, we need to cover the basics, starting with the car accident settlements themselves. What can you expect your car accident settlement to cover? The most obvious would be property damages. Then, there are physical or personal injuries and ailments. This means that you can expect your medical bills to be covered as well. In some cases, you might be compensated for emotional distress and wages you missed as a result of the accident.
Is money from a car accident settlement taxable?
The settlement that compensates you for physical injury or physical sickness is not taxable in Tampa, Florida. In other words, if you are suing someone for physical injuries that were a result of their negligence, the proceeds are not considered an income and are not taxed. However, this does not mean that every settlement is not taxable.
Which settlements are taxable?
If you happen to be awarded compensation for your emotional distress only, it will be taxable unless you are able to prove some amount of physical injury. Another taxable part of your settlement is the interest you earn while your case is pending. Also taxable are missed wages because they are considered a type of income.
What happens when a plaintiff is awarded punitive damages?
In some, albeit rare cases, the judge can decide to award the plaintiff punitive damages in addition to compensatory damages. This is usually done to punish the defendant and deter them from repeating the offense. However, it is important to know that punitive damages are in fact taxable.
When dealing with such a case, Dan Zohar asks the judge to separate the verdict into compensatory damages and punitive damages. This simple step can help you make sure that the IRS knows which portion of the damages is taxable.
Do I need to report my car accident settlement to the IRS?
The government will know about your settlement, so it is best advised to consult your Certified Public Accountant or your lawyer. They will have a better understanding of the intricacies of your settlement and how to protect you from all potential penalties.
Schedule your free consultation today!
If you or anyone else you know sustained injuries due to the negligence of others, attorney Dan Zohar is here to help. Call (800) 963-3311 toll-free to schedule your free consultation and have all your questions answered.