Many people wonder if the money they expect to receive from an insurance carrier is taxable. Generally speaking, money received from a personal injury settlement is not taxable. According to the IRS, if you receive a settlement award based on a personal injury and did not make a deduction for your medical expenses related to your injury, the full amount is not taxable. However, if you did take an itemized deduction for the medical expenses you paid in more than one year, you must include in income that portion of the settlement that is for medical expenses you deducted in prior years to the extent the deduction provided a tax benefit.
Money received for pain and suffering is not taxable unless that money did not originate from a personal physical injury.
However, money received to compensate you for your lost wages might be taxable. To make matters more complicated, the insurance company does not always categorize the settlement money. Instead, they typically issue the money in a lump sum covering all the damages that you sought. What you might consider doing is telling the insurance company that you want the release that you are to sign to say that the money is for your pain and suffering and medical bills and not your lost wages.
If you’d like to learn more, please check out this IRS pamphlet.
For better guidance, we suggest that you contact a tax attorney. If you have been involved in a car wreck and have questions about your rights and what you are entitled to, please contact one of our car accident lawyers at Carr and Carr Attorneys. We have offices in Tulsa, Oklahoma City and Northwest Arkansas. We can also visit you no matter where you live.