After a car accident, finally getting your hands on a settlement can bring financial relief that was long overdue. While you focus on settling your bills, you might not always think about whether you need to pay taxes on your settlement. The truth is, it isn’t always straightforward, and misunderstandings of your tax liability can lead to unexpected consequences. In this post, we at Gabriel Law embrace the role of your Queens car accident lawyer and explain everything you need to know about the relationship between taxes and accident settlements.
What are the types of damages in car accident claims?
When you present a personal injury claim after a car accident, you may be entitled to three types of damages: economic, non-economic, and punitive damages.
Economic damages are the types of damages you have suffered that have a clear financial value. These include medical expenses, damage to property, lost wages, and other related expenses.
Non-economic damages are the damages that account for intangible losses. Since they do not have a set financial value, they are determined on a case-by-case basis. Examples of non-economic damages include pain and suffering, emotional distress, loss of consortium, and the loss of enjoyment of life.
Punitive damages are the damages awarded by the court. They are awarded by the court to punish the offender and deter similar conduct in the future. While it is compulsory to award economic and non-economic damages, punitive damages are only awarded in rare cases when the court finds that the defendant’s conduct was especially reckless or intentional.
What parts of your car accident settlement are taxable?
In New York, the compensatory damages (economic and non-economic damages) are not taxable by the state and federal government. This protection applies to even cases where the person has suffered only minor physical injuries.
However, if you have only suffered emotional damages, without suffering any physical damages, you will have to pay income tax on your settlement. At the same time, you will also be taxed on the punitive damages you receive. That being the case, in a settlement where you receive compensatory and punitive damages, you will only be taxed on the punitive damages portion of your judgment.
Conclusion
When you’ve been hurt in a car accident, the last thing you want is to have to deal with the IRS. Fortunately, most of your car accident settlements are not taxable. But, there are a few tax obligations that you need to keep in mind, and you will need the help of an experienced accident lawyer in New York to help minimize your settlement’s tax profile.
If you’re looking for a skilled and experienced auto accident attorney in Queens to handle your case, then Gabriel Law is the firm for you. As a car accident lawyer in NYC, our team has handled thousands of car accident cases, helping our clients fight for justice and the compensation they deserve. Contact us today to arrange a free and confidential consultation with us. Your road to recovery starts with us.