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  • Are the Financial Damages I Receive from a Personal Injury Claim Taxable?

    injury claim

    In addition to the legal components of a personal injury claim, there are several financial issues to consider. If you were injured in a car accident that was caused by another person’s negligence, you may be eligible for financial compensation by filing a personal injury claim against the negligent party.

    Depending on the type of accident and the severity of your injuries, you may be compensated for a range of losses, including medical expenses, lost wages, and pain and suffering. If the at-fault party’s actions were considered particularly egregious, you may also seek punitive damages. While the proceeds you receive from a personal injury settlement are not usually taxable, there are certain components of a personal injury lawsuit that are taxed. A skilled lawyer will assist you with the claims process and thoroughly explain the possible damages, including those that have tax consequences.

    What Personal Injury Damages are Taxable and Non-Taxable?

    The IRS has determined that the taxable status of damages awarded for a personal injury claim varies based on the type of damages. The following are examples of the most common damages awarded in a personal injury claim:

    • Medical expenses: These include hospitalization, doctor visits, surgeries, physical therapy, prescription medications, and other costs associated with your injury. A settlement award meant to compensate you for these costs is non-taxable. However, if any of these expenses have been deducted on the previous year’s tax return, the amount of the deduction may be considered taxable income.
    • Lost wages: These are another example of damages that are commonly awarded in personal injury cases. If your injuries prevented you from being able to return to work for an extended period, the compensation you receive for lost wages is taxable. This is to be expected since state income tax, federal income tax, and other withholdings would be deducted from your paycheck if you had been able to return to work.
    • Pain and suffering: This may include the physical pain associated with the injury as well as the mental and emotional distress that the accident caused. The financial compensation you receive for pain and suffering is non-taxable.
    • Mental and emotional trauma: If you were involved in a serious accident that caused devastating injuries, this can cause severe mental anguish and emotional trauma. If your psychological injury was caused by a physical injury, the damages awarded are non-taxable.
    • Punitive damages: These are awarded if the at-fault party’s actions are considered particularly egregious. For example, if you were injured in a car accident caused by another driver who was intentionally trying to cause you harm by running you off the road, you may be eligible for punitive damages. In most cases, punitive damages are taxable.
    • Interest: If your personal injury lawsuit goes to trial, your settlement award will likely include an interest component that adds up to the judgement amount. This will include interest from the date the case is filed to the date that the judgement is paid. The interest amount is taxable.

    How Do I Prove Negligence?

    To have a successful personal injury claim, you must be able to prove that the other driver was negligent. The at-fault driver may be considered negligent if the following factors are true:

    • The other motorist owed you a duty of care. All motorists are expected to use reasonable care when driving. That means following the rules of the road and avoiding unsafe driving behaviors, like distracted driving, drunk driving, and drowsy driving.
    • The other motorist breached the duty of care. This means that the motorists acted or failed to act in a way that a reasonable person would act in a similar situation. For example, all motorists are expected to obey the speed limit. If a motorist is driving at a speed of 55 miles per hour in a school zone, this is a breach in the duty of care.
    • The breach in care caused your injuries. You must also be able to prove that the breach in care caused your injuries. For example, if a motorist runs through a stop sign and hits the side of your car, causing you to suffer a broken arm, you will likely be able to prove that the driver’s negligence caused your injury.

    What Other Factors can Impact My Personal Injury Claim?

    It is important to understand that many personal injury claims are settled before a lawsuit needs to be filed. In most cases, even if the claim cannot be settled and you proceed to filing a lawsuit, it is unlikely that the case will proceed to trial. A court judgement is not necessary to recover damages. The following are key differences between a personal injury claim and lawsuit:

    • Personal injury claim: If you are injured in a car accident, you may file an injury claim with either your insurance company or the negligent driver’s insurance company. The insurance company will investigate the accident, determine how it happened and who was at fault, and come up with a settlement offer. Most personal injury claims are settled out of court.
    • Personal injury lawsuit: If a settlement cannot be reached with the insurance company, you may file a personal injury lawsuit against the negligent party who is responsible for causing the accident. These are more complicated than personal injury claims because you will have to prove to the court that the at-fault party was negligent and caused the accident. That means convincing the jury that the other driver’s negligence caused your accident injury. This is considerably more time-consuming than a personal injury claim, as it involves a filing stage, discovery, trial, and the potential for an appeal.

    What Type of Insurance Coverage Do I Need?

    When pursuing a personal injury claim, the type of insurance coverage you and the at-fault driver have is going to impact how the claim is resolved, particularly if the other driver is uninsured or underinsured. The following are the types of insurance options available:

    • Liability coverage: This covers injuries caused to another person in the event of a car accident. Most liability insurance policies include liability insurance for bodily injury and liability insurance for property damage.
    • Uninsured motorist coverage: This pays for the injuries and property damage you suffered if you were in a hit-and-run accident or if the other driver involved does not have liability insurance.
    • Underinsured motorist coverage: If the at-fault driver has liability insurance but it does not cover the costs associated with your injuries, this will pay for the balance of the damages up to the policy limits.
    • Personal injury protection (PIP) coverage: This is an optional coverage you can purchase that pays for your injuries, regardless of who caused the accident. This typically covers medical expenses, lost wages, funeral expenses, and wrongful death benefits if the accident causes a fatality.
    • Residual bodily injury liability coverage: This protects you if another person sues you for injuries related to a car accident you caused.
    • Collision coverage: If you crash into an object, like another vehicle, a tree or a telephone pole, this pays for the damage to your vehicle.
    • Comprehensive coverage: This pays for the damage to your vehicle from things like hail damage, fire, theft, flooding and most other causes besides collisions.

    Car accidents can be extremely stressful and overwhelming, particularly if you have been injured. To have a successful settlement and understand the tax implications, you need an experienced lawyer on your side to protect your legal rights.

    Virginia Beach Car Accident Lawyers at Anchor Legal Group, PLLC Help Personal Injury Clients Understand Tax Consequences

    If you were injured in a car accident and wish to file a personal injury claim, do not hesitate to contact our Virginia Beach car accident attorneys at Anchor Legal Group, PLLC. We will address all your questions and discuss the tax consequences associated with specific damages. To schedule a free consultation, call us today at 757-LAW-0000 or contact us online. Located in Virginia Beach, we serve clients throughout Chesapeake, Norfolk, Suffolk, Portsmouth, Newport News, Hampton, and Eastern Shore, Virginia. We also serve our clients throughout the United States through our network of associated attorneys.