Texas Car Accident Injury Settlements and Taxes: What You Need To Know

Texas Car Accident Injury Settlements and Taxes: What You Need To Know

You always need to be aware of the tax implications of any car accident settlement agreement. Generally, car accident injury victims feel a lot of relief after a fair settlement is finally reached. The last thing you will want is an unexpected headache from the IRS. The tax consequences of any legal settlement should be fully considered before a settlement is finalized. An experienced San Antonio car accident lawyer will help you properly structure your car accident settlement to make sure that you are not subject to an unfair tax burden.


Non-taxable Compensation


The portion of your settlement that is designed to compensate you directly for your losses is generally not taxable. Specifically, that means that under IRS rules, the part of your settlement that covers property damage and medical expenses will usually not be subject to taxation. The purpose of this type of compensation is to put you back in the position that you would have been if not for the car accident. Legally, this concept is referred to as making the victim ‘whole’. However, as is common with tax issues, there can be some complicating factors. For example. If you have already taken a tax deduction for your car accident related medical expenses, then you may be taxed on that portion of your settlement. A Texas car accident lawyer should comprehensively review any settlement offer before you sign. Ideally, you should have a lawyer negotiate your settlement, first to make sure that you are getting the best deal possible, but also to structure the agreement in a way that protects you from excessive taxes.


Taxable Compensation


Some forms of car accident compensation are generally taxable. You will likely face taxes if your settlement includes compensation for:



  • Lost wages: Compensation for lost wages will make up for the money that you were unable to earn because of your car accident injury. This money will always subject to taxation. Much like compensation for medical expenses, lost wage compensation is designed to make you ‘whole.’ So, you will be required to pay the taxes on that money that you would have had to pay if you been able to work. Your actual tax burden for lost wages will depend on your individual financial situation.




  • Exemplary Damages: Compensation for exemplary damages is not designed to make the car accident victim ‘whole’. Exemplary damages are solely meant to punish the grossly negligent actions of the guilty party. In Texas, exemplary damages are common in DWI accidents that lead to serious injuries. While the money goes to the accident victim, it will be taxed.



Contact an Experienced San Antonio Car Accident Lawyer


When it comes to taxes, preparation is always the key. You should never ignore the tax consequences of your personal injury settlement. At the law office of San Antonio Injury Lawyer, we have extensive experience helping injured Texas car accident victims reach fair settlements. We always pay attention to every possible issue and can protect your settlement from excessive taxation. If you have been injured in a San Antonio car accident, please contact our San Antonio auto accident lawyers today to schedule a free legal consultation.