Compensation awards for car accident injuries, a wrongful death, and other injuries all lead people to the question, should I claim this on my taxes? The tax situation on compensation awards varies significantly with the cause of the injury. In some cases, the compensation is only to replace a lost asset. In other situations, it may be much more vague as to why someone is receiving compensation. In general, you shouldn’t have to pay taxes on compensation awards from car accidents or dog bites. However, when you’re looking at situations that involve lost income or support for the household after a wrongful death, you might have a different answer.
In situations like these, a personal injury attorney in Tampa, Florida may be able to help steer you in the right direction.
You Should Not Expect to Pay Taxes on Compensation Awards
On homeowners and car insurance payouts, you certainly shouldn’t expect to pay taxes for a wide variety of reasons. First, you’re replacing an asset. Second, your handling damage, not a new service or object. Third, it’s not a source of income.
In some cases, such as receiving funds for the lost income, you may include that on your taxes when you file, but they would need to provide you with an additional tax form. There are other uncommon situations, such as claiming the vehicle that was replaced as a business expense. For example, if you were in a wreck that involved a personal vehicle that you use for business, then you may need to claim a portion of the compensation that was used for your vehicle.
Replacement of an Asset
The reason why there’s no taxation is that, in theory, you’re only replacing an asset that you’ve already paid taxes on. Your car that was damaged in the wreck is something that you paid taxes on, and what you receive in compensation would not result in a second tax. Additionally, your medical bills shouldn’t have a separate tax that comes along with medical bills after your insurance payout covers the medical lien. To that extent, you may be paying taxes that would come with prescriptions or so forth, but still, you wouldn’t pay those your insurance coverage would handle it.
Single Car Accidents Considered in Compensation
Unlike other accidents, when you have a no-fault system, single car accidents are often more closely reviewed for fraud. What happens is that they don’t want people crashing the cars that they planned on replacing anyway to get an insurance check as income rather than to replace an asset. What happens in single-car accidents is that Florida insurance companies will often just payout. But they still go through and investigate to ensure that there’s no suspicious reason that someone would total their vehicle.
Even still, single car accidents are not treated as income because there isn’t a profit made in the insurance settlement. You will only recover the bluebook value of your car and nothing more unless you have injuries in which that would cover your injuries.
What About Wrongful Death or Other Claims of Loss
There are times when a family will come together and file a wrongful death claim. When you’re claiming a loss, what you’re doing is not earning an income, which would be taxable, instead, you’d have that in place of the person. When calculating the damages in wrongful death or a claim of loss, you’re looking at assigning figures that match specific everyday items.
For example, a claim of loss, such as a loss of limb, might include the time you lost at work and the time you spent learning a new trade because returning to your job wasn’t an option. It may be worthwhile to go through the long list of losses claimed to ensure that you’re not claiming something that could be counted as income. For example, your lost hours at work may be taxable.
A Personal Injury Attorney in Tampa Can Explain Further
Even in the event of receiving very high dollar amounts in settlements, you should not expect to pay taxes on compensation awards. That doesn’t mean that there’s no chance that you could need to pay taxes on some of it. Ultimately, you should talk this over with a personal injury attorney and your accountant.
Winters Yonker is home to many Tampa accident lawyers, and we cover everything from dog bites to truck accidents and other injuries that are someone else’s fault. There are times when you may need to pay taxes on compensation awards, and a finance professional can help you understand when those situations apply to you. For now, get your case started with a personal injury law firm in Tampa, FL.