In South Carolina, you do not have to pay taxes for compensation you receive due to a personal injury. However, tax issues can come up when it comes to differentiating between damages awarded for physical harm versus compensation provided for pain and suffering. Fortunately, a North Charleston car accident lawyer can help you recover a fair amount of compensation for your economic and non-economic losses, regardless of the potential tax implications.
At the Shelly Leeke Law Firm, we help auto accident victims get compensation from at-fault parties. Our South Carolina car accident lawyer can review your case. For more information, get in touch with us.
Tax Implications of a Car Accident Settlement
Per Internal Revenue Code (IRC) §61, amounts paid on account of a personal injury are not classified as part of someone’s gross income. Also, IRC Section 104 states that gross income does not include damages given to someone due to a physical injury. Based on these regulations, your personal injury car crash settlement may not be taxable on the federal level.
Of course, what you get in a settlement may account for more than just your physical injury. For instance, you may get compensation based on lost wages and various subjective losses you incur. You may have to pay taxes on this compensation.
Ultimately, your attorney may break your settlement down into components. This allows you to see just how much money you are getting for your medical bills and other losses. It can also help you figure out your tax liability.
Taxes on Medical Expenses
If you get hurt in an auto crash, go to a doctor and receive medical care. In addition to the fact that doing so can help you rebound from your accident, you may receive non-taxable damages for your medical bills. Some of the medical costs you may be able to recover after your accident that may not be subject to taxes include:
- Physical therapy
- Prescriptions
- Medical tests
- Surgeries
The team at the Shelly Leeke Law Firm can help you calculate the losses you incur due to a catastrophic injury or any other physical harm you suffer in a car accident. We can help you maximize your personal injury settlement, too. To learn more, reach out to us.
Taxes on Lost Wages
If you lose wages as a result of an auto accident and receive compensation from an at-fault party, the money you get may be subject to taxation. The reasoning behind this is that you would have been able to earn this income had you not gotten hurt in the first place. Much in the same vein, you would have been taxed on this money if you had been able to work.
How your damages for lost wages are paid out can affect how you are taxed on them. For instance, if you get a large lump sum, this may push you into a higher tax bracket. On the other hand, if your damages are paid out gradually, you may be able to stay within your current bracket for taxes or a lower one.
You cannot change the fact that lost wages are taxable in personal injury settlements. Conversely, you can hire a lawyer who has helped auto crash victims get outstanding case results. This attorney can help you optimize your claim, offset your tax liability, and get the most money possible.
Taxes on Pain and Suffering
Those who get hurt in an auto collision are likely to experience pain and suffering. When you submit a claim following a car crash, an at-fault motorist’s insurance company may do everything it can to avoid having to cover all of your losses. As part of its efforts, it may dispute your request for compensation based on suffering and pain.
To boost your chances of securing compensation for pain, suffering, and other subjective losses, partner with an attorney. Then, you and your lawyer can work together to prepare an argument that shows you are in no way responsible for your collision. Along with this, your attorney will account for your economic and non-economic losses as they try to get you a fair car accident settlement.
If you receive compensation for suffering and pain, you may have to pay taxes on it. Your attorney can differentiate damages relating to your personal injury and those associated with non-economic losses. They can also help you avoid serious tax liabilities for subjective losses.
Taxes on Punitive Damages
According to South Carolina Code §15-32-530, punitive damages may be awarded in personal injury cases. These are given out to deter an at-fault party from committing negligent acts in the future. They are provided in conjunction with economic and non-economic compensation.
As an example, you may be involved in a drunk-driving accident. An intoxicated motorist may slam their car into your vehicle, and the accident may leave you with a permanent injury. In this situation, a court may award you economic and non-economic damages to make you whole and punitive compensation to punish the at-fault motorist further.
It is rare for punitive damages to be provided in an auto accident case or other personal injury lawsuit. If you receive these damages in your auto crash settlement, you will have to pay taxes on them. This is due to the fact that these are not part of compensatory damages awarded to make you whole.
How to Maximize Your Car Accident Settlement
Account for the tax implications of a settlement as you calculate your auto accident losses. It is also in your best interests to ask for both economic and non-economic damages. Once you understand your losses, you can prepare an argument designed to compel a judge or jury to rule in your favor.
If you get a settlement offer from an at-fault driver or their insurance company, review it carefully. Do not accept a settlement proposal unless it provides you with enough compensation to cover all of your losses. Remember, if you approve a settlement now or get awarded damages in court, you may have to pay taxes on certain portions of it.
Lastly, connect with the team at the Shelly Leeke Law Firm. We can help you file an auto accident claim against a negligent motorist. To schedule a free case consultation, contact us today.
