If you have recently received a car accident settlement, you may be wondering if it is taxable. If that is the case, you will need a car accident lawyer in Loganville to help you navigate the intricacies of car accident settlements. In most cases, car accident settlements are not taxable. However, there are exceptions, and you must be aware of these exceptions to ensure you do not fall foul of the law.
Before we go on, it is essential to point out that you need to get the opinion of a tax professional if you have any doubts. That way, you can be sure you are getting the best advice possible. So with that out of the way, let’s get right into it.
Are Car Accident Settlements Taxable?
There is no one answer for whether car accident settlements are taxable. Taxing car accident settlements depends on what the settlements are. For example, you could be offered settlements to cover any lost income or medical expenses. While income losses can be taxed, medical expenses cannot be taxed.
Which Car Accident Settlements Are Taxable?
The Internal Revenue Service addresses the issue of taxing settlements and judgments in title 26 of the Code of Federal Regulations. It excludes damages awarded as a result of physical injuries or sickness from being classified as personal income. Therefore, they cannot be taxed.
Should you be involved in a car accident that results in you receiving a settlement, here are a few damages that you can claim. In addition, we indicate which damages are taxable to help you with your decision.
Most car accident settlements are awarded to cover your medical expenses. This could include costs for surgery, physical therapy, or any other medical prescription. Typically, when you receive such settlements, the purpose is to cover your medical expenses and are therefore not taxable.
After an accident, you may lose all or part of your income due to your inability to work while you recuperate. In this case, you could be awarded a settlement that covers your lost income. However, this is taxable because it is assumed that you would have been required to pay taxes had you continued working.
An accident could leave the victim permanently scarred or disfigured. Such an accident victim may receive disfigurement damages as part of a settlement. Like settlements for medical expenses, disfigurement settlements are not taxed.
Pain and Suffering
This goes without saying, but accident victims suffer pain as a result of their injuries. Fortunately, the law allows for damages to be claimed in this instance. In addition, settlements awarded for such damages are also not taxed.
Loss of Consortium
Injuries sustained from an accident not only affect the victim but those around them as well. If an injury has made it difficult for an individual to have normal relations with their spouse, they can file a loss of consortium claim. In some states, children can bring loss of consortium claims. However, in Georgia, only spouses can do that, and it must be done within four years of the date of the injury.
You can expect that the defendant would attempt to get your claim thrown out. To have any chance of success, you need to prove a valid marriage or relationship existed. However, the success of this claim is often dependent on the victim’s ability to claim damages for the accident. Therefore, it is also not taxable.
As the name implies, punitive damages are awarded to a defendant as punishment and are expected to deter future actions. However, these awards are extremely rare in car accident settlements and are only awarded if the defendant has displayed extreme carelessness or neglect. In the rare event that you are awarded punitive damages, then there’s a chance that they would be taxed.
Structuring Your Car Accident Settlement
By now, it must be clear that taxation on car accident settlements varies and largely depends on the specific damage. Working with a legal professional could help you pay less in taxes if you have to pay taxes. Therefore, before starting settlement proceedings, seek the advice of a professional to structure your payments over several years and avoid paying lump sums in taxes.
Contact The Weinstein Firm Today!
At The Weinstein Firm, our legal team has combined years of experience helping injury victims get settlements. We also ensure you keep most of it and only pay the required tax. With us, you have a better chance of getting maximum compensation and not falling afoul of the law. So call today for a free case review with one of our Loganville auto accident attorneys.