If you receive a settlement for your personal injuries after a Florida car accident, some of those funds may prove taxable. How much–if anything–you must pay depends on the unique circumstances of your case. In general, awards resulting from an injury are not taxable.
A Florida car accident attorney at Kogan & DiSalvo knows how to negotiate a settlement that will maximize your compensation while minimizing your tax burden. We leverage decades of experience representing personal injury victims throughout Southeast Florida and are passionate about fighting on behalf of our clients and their families.
Car Accident Damages
Because Florida is a no-fault state for auto insurance, the injured person must first file a claim with their insurance company–no matter who was at fault. Those who were seriously injured due to another party’s negligence may sue for damages only if they meet the state’s injury threshold, which includes:
- Loss of the ability to perform a bodily function
- Significant disfigurement
- Permanent injury or aggravation of a pre-existing condition
No one wants to endure serious, perhaps permanent, injuries in a car accident. Therefore, compensation, or damages, for car accident injuries is not considered an asset. Instead, they are liabilities since the settlement provides a financial remedy to an injured party. Overall, damages in a Florida car accident are not taxable on either the state or federal level. However, there are exceptions.
The insurance company sends a Form 1099 to the Internal Revenue Service, reporting all settlement information.
Typical damages in a Florida car accident settlement may include:
- Medical expenses, current and future
- Lost wages
- Property damage
- Emotional distress
- Pain and suffering
The following damage awards are not taxed after a settlement:
- Physical injuries
- Emotional distress. Compensation for emotional distress is not taxable if your condition directly relates to your injuries. However, you must pay taxes if you receive compensation only for emotional distress and not physical injuries.
- Pain and suffering
- Medical expenses. Funds received for any medical expenses relating to your injuries are not taxable. That includes not only doctor and hospital bills but physical therapy, rehabilitation, and the cost of any equipment.
Here are the damages on which you can expect to pay tax:
- Lost wages. Just as you would pay taxes on earned wages, compensation for lost wages is also subject to tax.
- Punitive damages. Punitive damages are rarely awarded. They are used to punish a defendant for their misconduct. A jury awards them to show that egregiously reckless and negligent behavior will not be tolerated. In Florida, punitive damages are limited to three times the amount of compensatory damages, or $500,000, whichever is greater. If you are awarded punitive damages, you must pay taxes on them. That is because punitive damages are designed to punish the defendant, not compensate the plaintiff. Therefore, they are considered damages beyond normal compensation.
- Interest–If you receive interest on your punitive damages, you will owe taxes to the IRS. The interest on damages goes beyond compensation for your injuries.
Taxation on medical expenses relating to your injury is complicated. While medical expenses are not taxed, if you deduct medical expenses on your income tax return and later receive reimbursement, the deducted amount is taxable. Therefore, report the amount deducted as income–in the year it was received.
Skilled and experienced car accident attorneys know how to structure a personal injury settlement so that their clients are shielded legally from taxes to the greatest extent possible. At Kogan & DiSalvo, we work with tax professionals so that our clients keep as much of their settlement funds as the law allows.
After the anguish caused by another driver’s negligence, the last thing you need is an unexpected tax bill after a settlement.
Contact a Florida Car Accident Attorney
If you or someone you know was seriously injured in a car because of another party’s negligence or recklessness, contact an experienced Florida car accident lawyer at Kogan & DiSalvo today. Call now for a free consultation; there is no obligation to hire us afterward. And since we work on a contingency fee basis, you will not pay attorney’s fees unless we win compensation for your injuries. We look forward to hearing from you.