After you’ve received money resulting from a vehicle accident settlement, your next concern might be whether or not you need to pay taxes on it. Usually, you don’t need to worry about taxes when it comes to compensation for personal injuries. There are some exceptions, however, depending on the circumstances of your settlement. It is best to seek advice from a car accident attorney regarding the nuances of the tax code, but here are some essential facts you should know.
What Kinds of Compensations Are Not Taxable?
The Internal Revenue Service (IRS) states that under the tax code, funds related to physical injuries are exempted from tax deductions. As such, compensation for medical expenses, pain and suffering, and attorney fees are not taxable, but only if they directly resulted from physical injuries related to the vehicle accident.
Any payment that you received for mental and emotional suffering not related to physical injuries may be taxable. This circumstance can get a bit confusing because money awarded for emotional distress may be subject to taxes, but money awarded for pain and suffering is not taxable. A car accident attorney can help clear aspects up for you in this situation.
Why Is Compensation for Lost Income Taxable?
You might be wondering why lost income is taxable when you lose money that you would have earned if not for the accident. This is because you would have still been taxed for your original income even without the occurrence of the accident. In other words, since you are taxed on regular wages, you will still be taxed on lost ones.
If you need help understanding taxation regarding your settlement, talk to a knowledgeable car accident attorney from Fitzpatrick, Skemp & Associates, LLC in La Crosse, WI. An esteemed team of lawyers is always ready to assist in cases involving personal injury, workers’ compensation, and social security disability. They will work tirelessly to ensure you get the best outcome in your case. To consult with an experienced car accident attorney today, call (877) 784-1230 or make an inquiry via their website.