If you won a settlement or award from your personal injury claim after a vehicle accident, you may wonder if you need to pay tax on the money you receive. This is a smart question to ask, and it can help save you a lot of stress down the road. In Georgia, depending on the details of your case, you might need to pay taxes on certain portions of your vehicle accident settlement or judgment.
Where Do I Need to Pay Tax on My Accident Settlement or Judgment?
First, let’s cover the two main ways you can get money for a personal injury claim after a vehicle accident:
- Through a settlement paid to you by the at-fault driver’s insurance company
- From a judgment given by a judge or jury in court to award you compensation
Most vehicle accident claims result in a settlement that the victim and their car accident lawyer have negotiated. However, if the insurance company doesn’t agree to pay what the victim deserves, the case may go all the way to trial. If the victim and their attorney wins at trial, an award will be given.
Where you need to pay tax on the money you recover depends on what the compensation is to be used for.
Do I Need to Pay Tax on Compensation for Physical Injuries?
In Georgia, you usually do not need to pay any taxes on medical compensation for the costs of getting treatment. That being said, keep in mind that if you deduct medical costs on a previous tax return, you will need to report it on the current year’s tax return as your income.
Will I Have to Pay Tax for Lost Wages Compensation?
You will typically need to pay tax on the money you receive for lost wages. Lost wages are meant to act as regular income while you are recovering from your injuries. That means you would need to pay tax on it like with other income.
However, the amount of tax would not be more than what you already would have paid if you had continued working after the accident.
What About Pain and Suffering Damages?
You may have received compensation for mental injuries, also known as “pain and suffering,” if they resulted from your physical injuries. You will generally not pay tax on this type of compensation unless it is recovered for other types of emotional stress.
Are Punitive Damages Taxable?
Punitive damages are only awarded in cases where there is clearly malicious, reckless, or wanton behavior. If you were injured in an accident caused by a drunk driver, for example, you may be awarded punitive damages.
Since punitive damages are given outside of the actual costs of your accident, they are considered “extra” and you will likely need to pay tax on them.
What if There Was Interest in My Settlement?
Although it doesn’t usually happen, some vehicle accident settlements can accrue interest if they take years to settle. If this happens, you will have to pay tax on the interest—but not the rest.
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Do I Pay More Tax if I Win a Settlement Versus a Judgment?
It usually does not matter how you won the money in your accident case. Whether you received it through a settlement or a court judgment, you tax you’ll need to pay looks virtually the same.
How Can I Reduce the Tax I Need to Pay on My Vehicle Accident Compensation?
You only have a certain degree of control over how you pay tax on your money from the accident. Taxes cannot be completely avoided, unfortunately, but you may pay fewer taxes if you are paid periodically over time versus in one lump sum. The latter is known as a “structured settlement.”
If you are concerned about paying taxes on your settlement or judgment, call a car accident lawyer. They may be able to work out a way for you to get paid on a regular basis that helps reduce your tax responsibility.
Talk to a Car Accident Lawyer About Your Accident
If you need help understanding how your vehicle accident settlement is taxed, contact John Foy & Associates. We can look at your case and help you know what portion of your recovery is taxable. We can also assist you with any aspect of your car accident case, from filing the actual claim to negotiating for a fair settlement or taking the at-fault driver to trial.
To schedule a FREE consultation today, call at (404) 400-4000 or contact us online to get started.