You may be asking yourself, “Do I need to pay taxes on the settlement or judgment after a car accident?” These are the short answers. Continue reading for more details:
- Taxes are not usually required for Skilled car accident lawyer in St. Louis settlements that are meant to compensate you personally for your injuries or pain & suffering.
- You don’t have to tax the money you receive for your car repair or replacement.
- If there are any questions or concerns, it is important to speak to a tax professional.
Injured Compensation Is Not Taxable
Most settlements and judgments only cover “compensatory damages” or “general damages.” These categories of damages will compensate you for medical expenses, lost wages, as well as the pain and suffering that result directly from your injuries.
A typical settlement will only provide you with general and compensatory damages for your injuries and medical expenses. Most of this amount is exempt from taxes.
Vehicle Damage Compensation Isn’t Taxable
All compensation for vehicle damage caused by a car accident is non-taxable. This applies to both the cost of repairs and any reimbursement for rental cars while your vehicle is being repaired.
Lost Income Compensation Is Taxable
In general, income tax is applicable to any settlement or judgment amount that you receive in compensation for your lost income. Because your income from the original source would have been taxable if you had not lost it, any compensation to replace it should also be taxable.
You must pay taxes on any portion of your settlement or judgment that includes compensation for other types of losses, such as medical expenses. Although punitive damages are rare, they can be taxable.
It is rare for punitive damages to be included in a car accident settlement. This type of personal injury damage is often used to punish the defendant and deter future bad behavior. These types of damages can only be awarded in very exceptional circumstances, where the defendant has committed particularly extreme or egregious conduct. If punitive damages are awarded in a personal injury case and you are not granted them, they will almost always be taxable.
This post was written by Kelly-Ann Jenkins of Jenkins Law P.L. Kelly-Ann is an insurance claim Lawyer. The information on this site is not intended to and does not offer legal advice, legal recommendations, or legal representation on any matter. Hiring an attorney is an important decision, which should not be based on advertising. You need to consult an attorney for legal advice regarding your situation.
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