If you received an award settlement after a car accident, part of your damages may go towards taxes. Whether you will owe taxes on your award and how much you will owe depends on the reason the court awarded the money. If you are concerned that your award will decrease due to taxes, talk to an accountant. If you wish to discuss your claim and whether you are getting fair compensation for all your damages, the Law Firm of Anidjar & Levine can help.
Which Types of Damages Are Taxable?
Many car accident victims experience physical injuries, emotional trauma, and financial difficulties that require compensation. Thus, accident victims may agree to damages for lost wages, medical expenses, and other types of damages. Taxes will vary depending on the type of damages. Here are some common examples:
- Medical expenses – The biggest amount of award money for many accident victims is the award for medical expenses. The court will compensate you for surgeries, hospital stays, medical treatments, and various other medical costs. This money is usually tax free. However, if you took deductions on your latest tax return and received a reimbursement, the reimbursement may be taxed.
- Lost wages – Car accident victims may be forced to miss work for physical and emotional recovery. Lost wages provide these victims with compensation for the wages they would have earned if the accident had not occurred. Because wages are generally taxable income, lost wagesare also taxable.
- Pain and suffering – The court awards damages for pain and sufferingin an effort to compensate a victim for injuries, as well as any physical discomfort stemming from the accident. According to the Internal Revenue Code, damages stemming from physical injury are generally not taxable.
- Emotional damages–The tax code does not exclude any damages intended to compensate you for emotional suffering (e.g. depression, emotional distress, PTSD) from taxable income. Additionally, the cost of treatment for your emotional trauma falls under the category of medical expenses, and is therefore not taxable.
- Property damage– If your vehicle sustained damages in the accident, the money you receive for repairs and replacement is generally not taxable.
- Punitive damages– The Internal Revenue Code states that punitive damages may be subjected to taxation. This is because punitive damages are intended to punish the behavior of the at-fault party, rather than to help the victim recover.
How Can an Accident Victim Recover Damages?
In Florida, car accident victims will likely receive insurance benefits and other damages through one or more of the following:
- Settlement– The victim’s insurer and/or the at-fault party’s insurer may make an offer to cover some or all of the victim’s medical expenses and lost wages. If the victim accepts the offer, they have agreed to a settlement.
- Jury verdict– If the victim’s injuries are ‘severe’, according to Florida law, and the victim was unsatisfied with the insurer’s offer, our attorneys may assist the victim with the filing of a lawsuit against the parties responsible for their accident for additional damages. In some cases, a jury will determine if the defendant was at fault for the accident, and if the defendant’s negligence caused the plaintiff’s injuries; if so, the jury may award damages to the plaintiff.
- Bench trial– If there is no jury, a judge will make decisions regarding all the issues of the case and determine the plaintiff’s damages.
To save you time, stress and money, our attorneys will avoid going to trial and attempt to negotiate a fair settlement deal with the insurer. However, if your injuries are too severe, or the insurer refuses to cooperate, we may have no choice but to push forward with your claim in court.
Contact Our Attorneys for Help With a Car Accident Claim
At Anidjar & Levine, our attorneys are equipped to handle your case in all of the above situations. We will work with your insurers to make sure you get the best settlement offer possible. If your injuries are severe, and insurance cannot or will not pay for them, we may decide to present your case in front of a judge or jury.
In either situation, our goal is to make sure that the negligent party or parties who caused your accident pay you the compensation you deserve. And if you have any questions about whether your settlement is taxable, we advise you to consult an accountant.
For quality representation to assist you from beginning to end, call 800-747-3733.