Do I Pay Taxes on a Car Crash Lawsuit Award in Georgia?

hands using a calculatorIf you try to obtain compensation in a personal injury lawsuit after a car accident, you may be worried about having to pay taxes on any compensation you may receive. The good news is that most of the compensation you may receive is not taxable. However, there may be taxes on some portions of your settlement.

A licensed Savannah personal injury lawyer can provide more specific information about when you may owe taxes on an injury settlement and answer your other legal questions.


Damages that are not Taxed

Generally, certain parts of an injury settlement are not taxed, including the portions of the settlement that compensate victims for property damage, medical bills, and any pain and suffering resulting from their injuries.

 These parts of the settlement are not taxed because they are reimbursing you for out-of-pocket losses.


Injury Compensation That is Usually Taxable

Generally, certain forms of compensation in an injury settlement are taxed, including:

  • Lost wages – Since you would have paid taxes on your earnings if you worked, this portion of your compensation is taxable. The tax rate can be very high if you receive a lump sum for lost wages for several years of not being able to work.
  • Previously-deducted medical expenses – If your compensation includes damages for medical expenses you previously deducted from your taxes, and this allowed you to receive more money back from your income tax return, you may owe a pro rata amount for the tax benefit you received each year. You can use the IRS “Other Income” tax form to pay for this.
  • Emotional distress – If you receive damages for emotional suffering that is not the direct result of a physical injury you sustained, then you may owe taxes to the IRS. Emotional distress is not defined in the same way as pain and suffering. While pain and suffering are directly related to your injuries, emotional distress may be, for example, adjusting to a life-altering injury, such as the loss of limb, or developing a fear of riding in a car
  • Punitive damages – Any compensation defined as punitive, even if it is awarded as further damages for physical injuries or physical sickness, is taxable. This is also reported as “other Income” on line 21 of IRS form 1040.

How to Reduce Your Tax Obligation

Reducing the amount of taxable income from your car accident settlement may come down to how your damages are classified. However, this is not something you should try to handle on your own.

An experienced attorney can help you structure your settlement in a way that may allow you to reduce your tax obligation.


Questions About Taxes and Car Crash Settlements? Call an Attorney Today

Worried that you might need to pay taxes on injury settlement money? If you have these concerns, you need legal guidance. Contact Roden Law offices for a free consultation for answers to your legal questions.

If we represent you, there are no upfront charges to worry about. We accept personal injury cases on contingency, so we do not get paid unless we obtain compensation on your behalf.