auto accident

Are Auto Accident Settlements Taxable?

Following a car accident, victims often suffer physical injuries, emotional trauma, and financial difficulties. In order to compensate car accident victims, insurance companies routinely pay out settlements. A settlement is an amount of money that a victim’s insurer and/or an at-fault party’s insurer may offer to cover some or all of a victim’s expenses caused by a car accident. Auto accident settlements compensate victims for things like medical expenses, lost wages, and other types of damages. Unfortunately, however, auto accident settlements may be taxable. Whether taxes are owned on a car accident settlement depends on a number of factors. In this article, we examine the potential tax repercussions of auto accident settlements. 

Medical expenses 

The largest amount of award money for most accident victims is the award for medical expenses. Medical expenses include expenses for hospital stays, surgeries, medical treatments, and other medical costs. Money received for medical expenses usually isn’t taxed. However, if the recipient of the funds took deductions on his or her most recent tax return and received a reimbursement, the reimbursement may be taxed.

Lost wages 

Car accident victims often must miss work to recover from their injuries. Lost wages provide car accident victims who miss work with compensation for the wages they would have received had the accident not occurred. Since wages are usually taxable, compensation for lost wages is also taxable.

Pain and suffering 

Pain and suffering damages are awarded to compensate car accident victims for physical discomfort experienced due to injuries suffered in a car accident. These types of damages are generally not taxable.

Emotional damages

Auto accident victims sometimes receive damages for emotional suffering caused by a car accident. The tax code does not exclude such damages from a victim’s taxable income. However, the cost of treatment for emotional trauma falls under the category of medical expenses, making it untaxable. 

Property damage

Compensation for property damage incurred in an auto accident is generally not taxable. 

Punitive damages

Finally, the Internal Revenue Code states that punitive damages, which are awarded to punish an at-fault party in a car accident case for particularly egregious negligent behavior, may be subject to taxation. 

West Virginia Personal Injury Attorneys 

If you’ve been hurt in an auto accident in West Virginia, you should immediately contact an experienced West Virginia car accident attorney to discuss your case. An experienced West Virginia injury lawyer will protect your legal rights and guide you towards the proper course of action based on the circumstances of your situation. At Hewitt & Salvatore, our experienced personal injury attorneys pride ourselves on doing everything we can to obtain compensation for our clients. With Hewitt & Salvatore on your side, you can rest assured that your car accident case is in good hands. Please contact our office as soon as possible to schedule an initial consultation.