It's April 15th--you know what that means! Yes, it's my niece Angelina's birthday, but also it is Tax Day. So, I thought it was appropriate to talk about some of the tax consequences after a car accident, motorcycle crash, workers' compensation injury or other personal injury matters. Please remember that I am a personal injury attorney and not a tax attorney so it is important that you consult with a tax expert while filing your taxes.
Do you have to pay taxes on money you receive in a lawsuit after a car accident or other personal injury? The answer is "most times no." The Internal Revenue Service (IRS) states in Regulation 1.104-1(c) Damages received on account of personal physical injuries or physical sickness:
"Section 104(a)(2) excludes from gross income the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness. Emotional distress is not considered a physical injury or physical sickness. However, damages for emotional distress attributable to a physical injury or physical sickness are excluded from income under section 104(a)(2). Section 104(a)(2) also excludes damages not in excess of the amount paid for medical care (described in section 213(d)(1)(A) or (B)) for emotional distress."
Thus, in a typical case where no punitive damages are awarded (punitive damages are rarely awarded in personal injury claims), the injured person does not have to include the settlement on their taxes and does not have to pay taxes on the settlement money.
How about Florida workers' compensation benefits? Does the injured worker have to pay taxes on their Temporary Total Disability benefits or Temporary Partial Disability benefits? The answer is "most times no." You don't pay tax on workers compensation received by you or your survivors for job related sickness or injuries paid under a workers compensation act or workers compensation statute in the nature of a workers compensation act. However, if your employer continues to pay your regular salary or wages and requires you to turn over your workers compensation benefits, you are taxed on your tax return on the overage that was paid to you by your employer. Also, the part of your workers compensation that reduces your social security benefits or equivalent railroad retirement benefits is considered social security benefits and may be taxable on your tax return under rules for those types of income. Accordingly, your workers compensation may be indirectly subject to tax on your tax return.
If you have questions regarding your rights after a Florida car accident, motorcycle accident, Florida work comp claim or other personal injury matter, click here to schedule a free case consultation with Personal Injury Attorney Matthew Noyes. Attorney Noyes' personal injury law firm of Perenich, Caulfield, Avril & Noyes has been caring for client since 1955. As one of the oldest law firms in Tampa Bay, you can benefit from our experience. Contact us today!