Are car crash settlements taxable? When you suffer a car accident in Charlotte, North Carolina, it is an uphill battle to recover damages from an at-fault driver. You will typically need the help of a Charlotte car accident lawyer to ensure that you get a fair amount of damages.
Even after you have secured a suitable settlement through negotiations with the insurer or through a lawsuit in a court, you will still need legal guidance. At this stage, a lawyer will help ensure that you receive the payment at your own terms, as a lump-sum payment or a structured payment. You also need to understand whether the amount of settlement you receive is taxable or not.
In general, the compensatory damages recovered in a car crash claim or any personal injury claims are not taxable. However, this varies from one claim to another. And it directly depends on the kind of damages you have recovered.
Here’s a look at how taxation regulations apply to different types of damages that may be recovered in a Charlotte car crash claim.
In many car accidents, medical costs of having the crash-related injuries treated are quite steep. This is particularly the case in crashes involving serious injuries or long-term damage. Most plaintiffs in a car crash claim want to have these medical costs recovered since paying them as out-of-pocket expenses can create a serious financial burden for them.
The good news is that any damages you receive in lieu of your injuries and medical costs are typically not taxable. This applies to damages received for the past medical costs as well as the expected future expenses related to your treatment and recovery.
This is guaranteed in the Code of Federal Regulations Section 1.104-1. As per this section, any damages which are received in lieu of personal physical injury or sickness are excluded from taxation. However, there are other types of damages that may be taxable.
In a crash involving major injuries, you may be forced to take time away from work as you fully recover. This can result in lost wages. You are entitled to recover the full amount of these lost wages if you prove the fault of the other driver.
However, unlike medical costs, lost wages recovered as a part of a car crash claim settlement are taxable. This is simply because they are an alternative to your regular income which would have been tax-deductible had you been receiving your monthly paycheck from your employer. Since the lost wages are meant to compensate you for the paycheck, they are likewise taxable.
The damages you are awarded for vehicle damage suffered in a car crash are not taxable. This applies whether the damages cover car repair or replacement costs, or if they go towards paying for rental vehicles. In both cases, you are not required to pay any tax on these out-of-pocket expenses.
Punitive damages are awarded only in a small percentage of car crash claims. They are relevant when you can show that the other driver indulged in gross negligence, or was deliberately and intentionally negligent in causing the crash. Punitive damages are meant as a kind of punishment for the at-fault driver in order to deter the driver from indulging in similar behavior in the future. If you do receive punitive damages for your car crash claim, you will be required to pay taxes on these damages.
Paying Taxes on a Settlement
In a typical car crash claim, you will receive several types of damages as a part of a settlement. An average settlement may cover medical costs, lost wages, and vehicle damage. In some rare cases, punitive damages may also be a part of the settlement.
Once you receive the settlement amount, you will be required to pay tax on the portion of the settlement which includes taxable damages like punitive damages and lost wages. The rest of the settlement amount will remain non-taxable. A good lawyer or taxation expert can best guide you on how to calculate and pay the due taxes on your car accident settlement.
How Can a Charlotte Car Accident Lawyer Help You?
If you have received a car crash settlement in Charlotte, NC, our lawyers can help you arrange favorable payment terms and sort out the taxation issues. We can also help you if you are still in the process of negotiating a settlement. Our aim is to help crash victims receive the maximum settlement amount. Get in touch today to discuss your Charlotte crash claim with our lawyers.