It’s a common question we get from our personal injury clients hurt in a car crash. You are likely to wonder if taxes will consume the settlement you received once your case is resolved.
At Brooks Law Group, we know this is an important question. We advise clients to seek the advice of their CPA or tax professional so they can be ready to make an informed decision when there is an offer on the table.
Like many other areas of the law, the answer varies. This discussion is designed to give you a general overview of how the IRS views personal injury settlements.
Is a Car Accident Settlement Considered Taxable Income in Florida?
Personal injury damages are the funds you receive to compensate you for lost wages, medical bills, emotional distress, pain and suffering, harm to family relationships, and attorney fees. In most instances, these aren’t taxable if they are the result of a settlement that stems from a personal injury or a physical ailment.
What Can and Cannot Be Taxed After a Car Accident Settlement?
The following breakdown gives you insights regarding what parts of your settlement may be taxed.
Tax-Free Compensation For:
- Physical injury or ailment
- Emotional distress
- Medical expenses
- Lost wages
- If a breach of contract caused your injury, and this is the basis of your claim, then your awarded damages are taxable.
- Your lawyer should ask the judge or jury to separate the verdict into compensatory damages versus punitive damages. This clarifies for the IRS which part of the verdict was for compensatory damages, which are not taxable.
- Any interest you earn for the time the case has been pending is taxable.
- If you receive compensation for emotional injury only, it is taxable unless you can prove at least some minor amount of physical injury.
Do I Need to Report My Settlement to the IRS?
How you structure your IRS filing in the coming years is best left up to the advice of your tax lawyer and CPA. They will try to shield you from unnecessary taxes to the extent allowed by law. They will also try to shield you from having to pay any penalties or interest by notifying the IRS of your award, if necessary.
Be aware that the government will generally have access to your settlement information because the insurance company submits a 1099 to the IRS for your claim.
Contact a Car Accident Injury Lawyer in Florida If You’ve Been Injured
Winning a satisfactory personal injury award is just the beginning if you hire Brooks Law Group. We go beyond negotiating with insurance companies and trying your case in court. We understand the tax implications and have access to skilled tax professionals if needed.
Contact a motor vehicle accident lawyer in Florida now to schedule your free, no-obligation consultation.