One of the most common questions we encounter is whether or not someone will pay taxes when they recover compensation for lost wages. However, victims of a car accident need to consider if we’re covering compensation for lost wages is even an option. If you are only filing through PPI coverage, you may only be able to recover compensation for medical damage is associated with injuries sustained in the crash.
However, if you have additional coverage, or can take action against the other driver, then you could recover lost wages. To get started in this, you will need to talk to a Tampa auto collision attorney. These attorneys know the ins and outs and how to work with or against Florida’s no-fault policy. You may go through your own insurance provider, or file against a negligent driver. If you’re seeking compensation that will cover your lost wages, you’re going to need support.
Some Types of Compensation are Taxable
Some types of compensation are taxable; however, what most people typically receive is not. Wiggle a little more in-depth into the different sections of what is or is not taxable further on, but for now, just know that some types of compensation are subject to income tax. The IRS has declared that settlements and judgments are subject to taxability, excluding any income to cover damages received in regard to personal physical injury or physical sickness.
There are some stipulations, such as emotional distress, not being considered a physical injury. Additionally, if the compensation exceeds the damages for medical care, that may be taxable. The real answer to what is taxable and what is not is that it depends entirely on the situation, and the amount received as part of the settlement or judgment.
Lost Wages and Income Tax Explained
In 99.9% of cases that involve lost wages, that compensation recovery for the lost wages is subject to going through income tax. The rationalization for this is that your income, if you had earned it and been paid through your employer, would have been taxed. The IRS does note that taxing compensation or a settlement for lost wages is not suffering any type of income through standard payroll practices.
What is special to note here is that the withholdings relating to income tax should be withheld by the pair. That means that anyone paying compensation for lost wages, it should account for the income tax, withhold it, and they should provide you with a specific IRS form. However, it is still your responsibility to report that income along with that form when filing your taxes in the following year.
Special Notes for Specific Damages
We mentioned earlier that some types of Damages are always subject to taxes, and others are not. Property damage, especially to cover the loss of a vehicle or the loss of property contained within the vehicle, is not subject to taxes. The reason for this is that you have already paid taxes on that property. Additionally, it’s highly likely that you’re not recovering the full value of that property loss, so you’re not generating income or profiting from these types of compensation.
However, punitive damages are always subject to taxes. Punitive damages are taxable because although it is a reward to the victim or the family for extremely reckless behavior, it is technically a monetary reward. It is a profit or money you didn’t have before the crash.
Emotional distress is another type of damage that is always taxable. The IRS stance on this is that while you may have undergone some medical treatment to address emotional distress, such as therapy, compensation for distress doesn’t directly address medical expenses.
How to File a Claim with Your Tampa Auto Accident Attorney
Every claim starts in one of two ways. First, there is the possibility that you were in a collision and filed through your personal injury protection insurance plan. That is the most common method for filing a claim in Tampa as we’re in a no-fault state. The second way to initiate a claim is when the at-fault driver was so extraordinary negligent that it is possible for you to file a lawsuit against them for their actions. In Tampa, this is less common, but not impossible.
One common misconception in Tampa, and throughout Florida, is that drivers cannot take legal action against another driver. However, the events of drunk driving, street racing, and extremely reckless behavior, it is an option. Determine how to file your claim by contacting Winters Yonker. Our team of well-experienced attorneys fight to get the compensation that you deserve.