In general, you do not have to pay taxes on any money you obtain for injuries from an automobile collision settlement. The only exception to this rule is if the only injury sustained in the collision is long term emotional damages. The IRS considers any settlement for emotional damages, only, to be taxable. Also, any amount in the settlement for medical expense to treat the injuries is also not taxable.
A settlement is different from trial where there will be an itemized verdict form. If a jury itemizes damages for emotional damages (anxiety, depression, mental anguish, post traumatic stress disorder, etc.) these damages are taxable. If the jury itemizes an amount of damages for lost wages, these are also taxable.
Whenever you settle a personal injury claim you will be required to sign a Release of Liability. It is important that a lawyer review the Release to insure that you are properly protected.
If you or a loved one have been injured in an auto accident and would like more information about the personal injury claims process, you can request a free copy of Mike’s book, Kansas & Missouri Auto Accident Victim’s Guidebook, by clicking here or you can call Mike at 913-789-7477 to obtain a free consultation.