Do I Have To Pay Taxes On My Accident Settlement or Jury Award?

Posted by Jeremy Rosenthal | Mar 15, 2016 | 0 Comments


After an accident, you will likely be faced with a number of setbacks. You may need to seek medical treatment for your injuries and incur a number of medical bills, time off from work to recover from your injuries and the loss of income during this period, bills to fix any property damage that occurred during your accident (for instance, car damage if you were in a car accident) and damages for your pain and suffering. Luckily, you can recover these damages from the person who caused your accident and/or their insurance company by filing a personal injury lawsuit or reaching a settlement, respectively.

However, you may be wondering whether the compensation you are awarded is taxable. Like so many things with the law, the answer is: it depends!

Funds That Are Not Taxable

Generally speaking, any jury award or insurance settlement you receive as a result of your accident is not taxable. This is because the majority of compensation you are awarded is meant to make you whole again for your losses. In other words, the law does not consider your damages earned income and therefore, you are not charged taxes on these funds. There are, of course, a few exceptions, depending on what the compensation is for.

When it comes to damages for medical bills, this amount is not taxable because it is offset by a loss. The only time these damages will be taxed is if you have claimed an itemized deduction for medical expenses related to your injuries on your tax return in previous years. If you have, then the amount you claimed as a deduction must be reported as income and you must pay taxes on it.

Similarly, any award for mental anguish or emotional distress that you suffer as a direct result of the physical injuries you incurred during your accident is not taxable and does not need to be reported on your taxes.

Funds That Are Taxable

For lost wages, however, these funds are typically taxable. This is because compensation for lost wages is to make you whole for your lost income which you would have had to pay income taxes on anyway. Accordingly, any portion of your jury award or settlement that is meant to compensate you for lost wages is taxable.

Punitive damages are a special form of damages that are not meant to make you whole again. Rather, they are awarded in an effort to punish the person responsible for your accident for their reckless behavior. While punitive damages are not appropriate in every case, they are not uncommon. Any portion of your damages award that accounts for punitive damages is considered taxable income and must be reported on your tax return.

Though generally speaking, your personal injury jury award or settlement is not considered taxable income; you can see that there are a number of exceptions. To complicate matters, not every jury award or settlement itemizes which portions of the overall award are for which damages. For this reason, it is always best to consult with your personal injury attorney on which funds are taxable and which are not.

If your loved one has been injured as the result of someone else's negligence or reckless conduct, you need the help of an experienced personal injury attorney, like those at the Law Office of Jeremy Rosenthal, to assist you in determining whether you have a valid claim and if a lawsuit is in your best interests. Our attorneys can also evaluate how much your claim may be worth and will be by your side through every step of the way. For a free consultation, contact one of our personal injury attorneys today at (303) 825 – 2223, or visit us online.

About the Author

Jeremy Rosenthal

Attorney Jeremy Rosenthal is dedicated to helping his clients seek just compensation for their injuries regardless of the lengths he has to go to or the distances he may have to travel in order to get it.


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