Are car insurance settlements subject to income tax?
Income tax laws are very complicated although most proceeds from car insurance claims are not categorized as taxable income. Any monies received from a car insurance company as part of an auto insurance claim for vehicle repairs is not taxable. Of course, you always want to check with your tax accountant in regards to funds received from an auto insurance settlement but most insurance claims will not be subject to IRS income tax.
Taxable income is exactly that – income – and car insurance claims submitted to repair your vehicle to the same condition before an accident occurred are defined as “restoration of capital” and not subject to IRS income tax.
Are moneys received from a personal injury insurance settlement taxable?
This is where you really need the help of a tax specialist as whether or not personal injury insurance settlements are considered taxable income will depend on the nature and details of the settlement. Most personal injury settlements will fall under a section of the IRS income tax law which prevents taxation for monies received from a personal injury settlement. However should your settlement also involve monies for things other than personal injury damages then they may very well be subject to income tax. If you are in the process of a personal injury settlement than you probably have an attorney so you need to consult with both a tax attorney and your legal representative to understand the income tax implications of any personal injury insurance settlement. It’s very important not to solely rely on the advice of legal counsel as he/she may not be an income tax specialist. They may be very good at winning damages for your personal injury case but when it comes to the IRS you need a specialist in that field.
What is taxable income?
Any kind of settlement from an auto insurance company will include money. This could be cash to pay for vehicles repairs, compensate for personal injuries, reimbursement of lost wages or more. When it comes to defining what taxable income is in auto insurance settlements there is a pretty clear line of what is subject to taxation. Any monies awarded for medical expenses or vehicle repair are not subject to tax and anything else probably is. Monies for items like emotional distress or lost wages are subject to income tax.
Understanding how income and auto insurance settlements work is very important. Most any personal injury claim will be handled by a car accident attorney where a standard fee is 30% or 1/3 of the settlement proceeds. Attorney fees are often paid on the gross amount and sometimes do not include expenses so your ultimate net can be significantly reduced when you factor the total legal cost and income tax liability. It is not uncommon for the injured party to end up netting only 40% or 50% of the actual settlement at the end of the day.
Should I use a personal injury lawyer?
If you have been injured in a car accident then you are most likely entitled to some compensation from your auto insurance company or the party at-fault. The amount of money will depend on many variables including:
- Who was at fault
- What kind of injuries were suffered – physical, injury, financial etc.
- The severity of the injuries
- Where the accident happened
- and more
Whether or not you understand auto insurance coverage its always wise to seek the assistance of a personal injury lawyer or other legal professional who understands how auto insurance claims work. Many victims opt to find a lawyer recommend by someone they know as this side of the industry is very shady. While you do want a lawyer with a solid track record assisting you it’s almost important you find one who will always have your best interest in mind, and not his checkbook.
The value of any car insurance policy is in the details of coverage and many drivers often find themselves uninsured or underinsured for personal injuries in a car accident. You must understand the different types of car insurance and how coverage works before buying a policy. Compare car insurance companies today and learn about your auto insurance options. Simply enter your ZIP code above to find a list of auto insurance companies in your area.