Being involved in a vehicle accident is one of the most trying experiences of a person’s life, particularly if the accident resulted in a severe injury. In many car accidents, the victim chooses to file a personal injury claim and may receive a vehicle accident settlement. If you’ve received a settlement after a car accident, you may have a variety of issues on your mind, including if your settlement is subject to taxation.
In most cases, your settlement will not be taxed. However, there are some circumstances where taxes will need to be paid. Learn if you need to pay taxes on your vehicle accident settlement, and find out why you should hire a knowledgeable car accident lawyer.
Medical Damages
When trying to decide whether your settlement will be taxed, the most important issue to consider is what type of damages you were awarded. In most car accident cases, only general and compensatory damages are provided These damages are meant to make up for any financial losses you’ve suffered due to your accident, and are not intended to punish the liable party.
The most common forms of compensatory and general damages are for medical expenses caused by your accident injuries. Fortunately, these damages are not taxable because they are only meant to make up for your financial losses.
Similarly, any compensation that you are awarded due to damage to your vehicle will not be taxed. Vehicle damages are awarded to cover the costs of your car repair and any money that you may have been forced to spend on a rental car.
Lost Income
If the injuries suffered during your accident were severe enough to prevent you from working, you may be able to receive damages for lost income. Unlike general damages, lost income compensation is taxable. The reason this form of compensation is taxable is that the income you earned by working would have been taxable, so any damages that replace this income should also be taxed.
Should your judgment include damages for both medical expenses and lost income, you will need to pay taxes on whatever portion of the damages are meant to make up for your missing wages.
Punitive Damages
Although it is extremely rare, some car accident settlements involve punitive damages, which are meant to punish the party responsible for your wreck. Typically, these damages are only rewarded when the actions of the defendant were particularly negligent. Punitive damages are almost uniformly taxable, as they are considered compensation that you would not have received under normal circumstances.
To make sure you’re paying any necessary taxes on your settlement, you should review your case with the help of a car accident lawyer.
Consult with a New Jersey Car Accident Lawyer
If you’ve been injured in a vehicle accident and are considering filing a personal injury lawsuit, you need to be sure to get representation from a car accident lawyer from the Law Offices of Peter N. Davis and Associates, LLC. The legal professionals at the Law Offices of Peter N. Davis can review the facts of your case and tell you if you’re eligible for a lawsuit. We can also help you handle any tax issues arising from your accident settlement. Discuss your case with one of our representatives today.