Do I Have to Pay Taxes on a Personal Injury Car Accident Settlement?
In general, you do not have to bear the burden of paying taxes on your personal injury settlements. A settlement usually pays for medical expenses and repair bills. These are charges that do not involve the Internal Revenue Service. However, a portion of the settlement may be subjected to taxation if the settlement pays for long term emotional damages and loss of income.
Settlement money received to repair or replace your automobile is not taxable. You can use funds from a car accident settlement to repair your car, buy a new one, or deposit it in your savings account. The money is not subject to taxation because it is meant to replace the lost value of an asset and not to make profit. In addition, any settlement funds meant to replace or fix property that was damaged during the accident are not taxable.
Funds given for medical expenses and injuries are identified as compensatory and general damages. These funds are not subject to taxation. In addition, settlement funds will not be taxed if they can be tied to future medical expenses or a particular medical bill. Any portion of the settlement that pays for pain, suffering, and physical harm is safe from taxation because the pain and suffering was instigated by injuries sustained in the car accident.
While settlement for pain and suffering caused by an accident is not taxable, settlement payments for mental anguish are taxable. The Internal Revenue Service considers settlements for mental anguish as taxable because they are not associated with physical injuries. Any funds received because of anxiety, emotional distress, and post-traumatic stress is taxable. However, if you use part of your settlement to pay a psychiatrist to help you deal with mental anguish as a result of the accident, compensation related to the treatment cost is not taxable.
Settling a Personal Injury Case
Settling a personal injury case involves signing a release of liability against the other party in exchange for a specific amount of money. A personal injury lawyer can represent you in a settlement negotiation before, during, and after trial. In most settlements, the parties may agree to a lower amount than what your accident attorney asks for, but more than the amount the other party wishes to pay. Both parties often work towards a settlement to evade the uncertainty of a jury decision.
Personal Injury Settlements
Personal injuries like sprained wrists can be caused by slip-and-falls, car accidents and medical malpractice. Settling your case for the amount initially requested by your personal injury lawyer may not be possible. However, your accident attorney may provide you with several options for your settlement.
Calculating Your Possible Settlement
Personal injury lawyers have formulas which they use to approximate the value of a personal injury settlement. You can use the same formulas to estimate the value of your own personal injury. Calculate the total cost of your medical bills to date, your property damage, lost wages, expected medical costs among other relevant costs. The sum of these factors is referred to as your economic loss.
This blog post was submitted by Pacific Attorney Group.