Are Auto Accident Settlements Taxable?
Generally, you will not need to pay any taxes on the money you earned in your auto accident settlement. However, there are a few exceptions. Some components of your award can be taxable based on different scenarios, which we’ll discuss in the sections below.
In the rare case that you do have to pay taxes, it’s often applied to money intended to replace taxable income such as your wages, and any sums that reimburse you for matters other than the direct losses that are caused by your auto accident.
The Las Vegas car accident lawyers at Valiente Mott use their extensive knowledge and experience with U.S. and Nevada law to negotiate car accident settlements with the largest possible amounts that are free from federal or state taxation.
When you need a Las Vegas car accident attorney to represent your interests after a negligent driver has left you with large property losses and serious injuries, make sure that the attorney you retain has a thorough understanding of how taxes will affect your damages settlement.
What parts of an auto accident settlement are not taxable?
- Medical Bills & Recovery Fees: A large portion of a personal injury lawsuit settlement will replace the costs and expenses of medical bills and fees for occupational and rehabilitation therapy.
- Pain & Suffering: The funds you receive to compensate you for your pain and suffering are also exempt from taxation.
- Damaged Property: Compensation for the repair and replacement of any damaged property with value.
In general, if a component of an auto accident settlement is intended to repay you for the out-of-pocket expenses that you incur as a direct and proximate result of your accident, the IRS will exempt that component from your personal income for tax purposes.
What types of settlement funds are taxable?
If you are unable to work while you recuperate from your car accident injuries, you may be entitled to recover your lost wages as part of your settlement.
Money replacing a taxable income: Since your regular earnings are taxable, settlement amounts that are paid to replace your gross earnings are taxable as income to you. Likewise, if a portion of your settlement is characterized as a payment of interest on other settlement amounts from the date of your accident, that interest is taxable.
Ask your personal injury lawyer about how to report a settlement amount for lost wages, interest, and similar payments on your personal tax returns.
Do you need to pay taxes on settlement amounts for mental anguish and distress?
If your anguish and distress arise from your auto accident injuries, the settlement funds you receive on account of that distress are exempt from taxation. They are not exempt, however, if your distress is the result of your witnessing someone else’s injuries, regardless of how emotionally traumatic that experience might be.
The consequences of a serious auto accident are bad enough without having to pay taxes on any settlement award you receive for those consequences. In view of this, the car accident lawyers at Valiente Mott work to structure settlement awards for their Nevada car accident clients to minimize the tax burdens they may face.
Please call our Las Vegas offices to consult directly with one of our personal injury attorneys about the tax exposure you might face with an auto accident settlement. We offer complimentary consultations. If we accept your case, we will earn our fees as part of your settlement award and you will owe nothing out-of-pocket.