Depending on the details of the situation money received in car accident settlements may or may not be taxed. Speak to a Kane County car accident lawyer about your legal options in pursuing compensation after your accident.
What Kinds of Compensation Can Be Collected After an Accident?
When you are involved in a car accident you could suffer a lot of damage. There are a few types of compensation that you can request and receive through a car accident claim or lawsuit. Consider the following.
- Economic damages: You can collect economic damages as reimbursement for any real expenses incurred as a result of the crash. This may include medical expenses like hospital stays, surgeries, medications, and rehabilitation as well as lost wages due to absence from work, costs to repair property damage, etc.
- Non-economic damages: Some losses do not have an inherent value or specific price tag. You can be awarded non-economic damages for suffering that did not technically cost you money. For example, physical pain, mental anguish, the development of mental disorders, and emotional suffering including anxiety and depression can all be compensated.
- Punitive damages: A court may order a defendant to pay punitive damages on top of their other requirements. Punitive damages act as a way to penalize the defendant for their behavior, particularly when it was egregiously negligent, reckless, or malicious in intent. They are not often awarded during a car accident settlement but may be depending on the details of the situation.
Once the above damages are calculated and awarded by the court many people assume that they will receive that specific amount. However, that is not always true.
Are Settlements from a Car Accident Taxed?
Income is taxed by the state and federal government, so some may wonder if damages from a settlement can be considered income. After all, it is money coming into the individual’s bank account. Damages awarded during an accident claim or lawsuit may or may not be taxed depending on the type of compensation.
Economic damages are not considered taxable by the government. These damages act as a way to reimburse the victim for the costs that they were charged or had to pay out of pocket. If the defendant did not cause the accident and injuries the victim never would have had to pay those expenses. It would not be fair to tax the compensation they receive.
Punitive damages, on the other hand, are considered taxable. This form of compensation is not attached to any real loss by the victim, it is just extra that is designed to penalize the defendant for their actions. It actually has little or nothing to do with the victim so it is taxed.
Non-economic damages may or may not be taxed depending on the individual circumstances. If the damages are associated with an injury then no, they are not considered taxable. For example, if the compensation is for the physical pain that the victim suffered from surgery or the development of PTSD after the accident, the non-economic damages will not be taxed. However, if they are not associated with an illness or injury they may be subject to taxation.
Talk to a skilled attorney for more information specific to your situation.
