Here’s the good news: in Florida, most personal injury settlements are not taxable by state law. Personal injury settlements are also generally not taxed by the federal government either.
Nonetheless, tax law is quite complicated, and most people who are not trained in taxes or lax law are well-advised to seek professional assistance. If you have received or expect a settlement for injuries and property damages obtained in an auto accident, let a Florida car accident attorney at Searcy Denney help you make sure you receive all to which you’re entitled.
Why Florida Accident Settlements are Generally Not Taxable
Federal tax law does not include amounts received from a personal injury as gross income. Such damages are designed to pay for things like medical bills, pain and suffering, attorney fees, and other types of “damages,” which are remedies in the form of monetary compensation to a harmed party. Thus, personal injury settlements are a liability rather than an asset. So if you get a settlement on your claim, you typically will not be surprised by a large tax bill at the end of the year.
Furthermore, settlements and judgments are considered identical when it comes to taxes. Therefore, it doesn’t matter whether the money you received is through a settlement or a jury award following a trial.
Exceptions to the “No-Tax” Rule
Nonetheless, there are some damages you receive along with your injury claim that may be taxable, including:
- Punitive Damages. Punitive damages are considered a form of income because they go beyond the initial loss cost and are therefore taxable.
- Interest. Interest is also a form of income above the initial loss cost, so it will be taxable.
- Lost Wages. Since your wages are part of your income, the amount you receive for lost wages count as the wages you’d typically be earning and are therefore taxable.
- Emotional Distress. Typically, emotional distress is not considered taxable income if it is a direct result of the injury. However, if the award for emotional distress is not related to the injury, it is considered taxable income.
- Invasion Of Privacy. Invasion of privacy is a form of punitive damage and not directly related to the injury costs and is therefore taxable.
- Discrimination. Discrimination usually results in lost wages, so it is considered compensatory income and is therefore taxable.
- Harassment. Harassment can cause emotional distress or injury, so it may not be taxable, but it depends on the circumstances. Typically, the IRS will tax harassment in relation to the injury.
- Wrongful Termination. Wrongful termination is considered a form of lost wages and is therefore taxable.
- Defamation. Defamation is also not directly related to the injury; instead, it is designed to make up for lost income and is therefore taxable.
Contact a Florida Car Accident Attorney for More Information
If you have multiple claims against a defendant, you need to clearly describe which awards are received for which damages, rather than lumping it all into one figure to cover all damages. That way, you can prove to the IRS that only a portion of your settlement, if any, is taxable.
Tax law is complicated and is, therefore, best left to the professionals. A Florida car accident attorney at Searcy Denney can help you characterize your damages and take advantage of the tax laws. We offer a free consultation and work on a contingency fee basis. If you need our help, contact us online today.