Is My Personal Injury Settlement Taxable?
If you have received a settlement following a car accident, you’re might be wondering, “Do I have to pay taxes on that money?” The short answer is, “In most cases, no.” However, that is not a hard and fast rule, and the answer depends on the nature and circumstances of your settlement or judgment. It is important to know that only your tax advisor can give you tax advice. Here are some questions you might want to ask a tax professional. Remember, Only by discussing these issues with an expert can you be confident that you are receiving the most current tax information. Generally, financial settlements are viewed the same when it comes to the question of taxes. The Bottom line is it doesn’t matter whether the money you received is through a settlement at the claim stage, or through a judgment following a trial.
So, How Does the Tax Code Affect your Settlement? The applicable language of the IRS regulation addressing the question of taxability of settlements and judgments is found at 26 C.F.R 1. What you need to know is “The vast majority of settlements and judgments are for only “compensatory damages” and “general damages.” Those categories of damages are meant to compensate you for your medical expenses, lost wages, and the pain and suffering that arises directly from your injuries.
In a typical settlement where you receive only compensatory and general damages for your physical injuries and medical expenses, most of that amount is usually not subject to taxes. This is because that type of settlement or judgment is meant to reimburse you for your out-of-pocket losses. plus, Any compensation you receive for vehicle damage resulting from a car accident is not taxable. Generally speaking however, any settlement or judgment amount you receive as compensation for lost income is subject to income tax.
If you have a question Call Harold Ehrenberg today (call us today) and we can provide basic information on the taxability of your settlement or judgment. If you’ve got more complex questions about the tax implications of a personal injury settlement or judgment, it’s best to seek out the advice of a tax professional.