Being involved in an automobile accident is a stressful situation. Receiving compensation afterward is one way to help you start to recover both physically and financially, but the question remains do you have to pay taxes on a vehicle accident judgment or settlement?
The good news in this situation is that in most cases you will not have to pay taxes on any funds you receive in the result of an accident. This, of course, coincides with the details surrounding your incident, as depending on the nature of your accident it cannot be said that you will definitely not owe taxes on this money.
In addition, it is always best to speak with a tax professional to ensure what you will owe or not owe on any settlement you receive. Although whether you received the money in a judgment or a claim, in most cases you will not have to pay taxes on this type of monetary matter.
The main reason that taxes are not usually owed in these circumstances is because your accident has already caused you to suffer a financial loss that you most likely already have had to deal with. When you receive a judgment or settlement they are meant to give you money for the general and/or compensatory damages that you are being reimbursed for. This is meant to compensate you for the pain and suffering, loss of wages and any medical expenses you were responsible for which is why this money is not taxed.
This reasoning also explains why any money you receive for damage to your car in an accident is not taxable as well. Whether it is the amount you had to spend to get a rental car or for the money you paid to get your car fixed, none of this will be taxable as long as they are a result of the accident you were involved in.
One type of compensation that is actually taxable in these instances is any money you receive from not being able to go to your job. This lost income would be considered taxable because it is money that you would have received if you were able to go to work regularly, and if that was the case you would have paid taxes on it in the first place.
Another possible yet rare situation that you may find yourself in where you may have to pay taxes is if you are awarded punitive damages. This is not a typical outcome as a result of a car accident but if it does occur you should know that this is most likely a time you will have to pay taxes on compensation you received. Although again, personal injury attorneys are not meant to be tax specialists. When it comes to tax matters it will always be best to converse with a professional about your specific case.
If you or someone you love has suffered an injury in a car accident an experienced personal injury lawyer can help you get the compensation that you need and deserve. Contact the law offices of Salter Ferguson, LLC via our online contact form to start discussing your case today.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.