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Do You Owe Taxes on an Accident Settlement?

An accident settlement may be taxable or non-taxable depending on how they are classified

When you win a trial verdict or a settlement for personal injuries and other damages from an automobile accident, it feels like the end of a long road. Still, you have more to work through. The way the parties classify the settlement can determine how much of what you collect is taxable. Plan to work with an experienced personal injury attorney who can help you understand the tax consequences of your settlement.

Non-Taxable Recovery

The IRS excludes some parts of a settlement from taxation. Any recovery that is related to your physical injuries will not be taxable. This includes your medical costs, as well as attorney fees and pain and suffering–as long as they result directly from your injuries. These damages reimburse you for direct losses due to your injury, and they are not taxed.

Taxable Recovery

Unfortunately, you cannot avoid taxation on all damages. Punitive damages are taxable. And, in certain circumstances, lost wages can be taxable as well. If most of your damages get classified in these categories, it makes a big difference in the ultimate value of your settlement.

Why It Matters

The tax hit on an injury settlement can take a significant piece out of what you recover. An experienced personal injury attorney can help in two ways. One is simply by helping you understand what you can expect from a tax perspective. If you settle your case, an attorney can help you prepare the settlement agreement to help you classify as much of your recovery as non-taxable as possible. This is a hidden area where the right attorney can help you immensely.

If you have been in an accident, contact Eisenberg Law Offices online or at (608)256-8356. Our experienced attorneys understand the tax consequences of not only what you receive, but also how what you receive gets categorized. We will help get the most from your settlement.

EISENBERG LAW OFFICES, S.C.

308 East Washington Avenue Madison, WI 53703 (608) 256-8356

Madison WI Attorneys Since 1983


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The Information Contained In This Site Is Not Intended To Provide Legal Advice. Please Consult An Attorney To Discuss The Facts Of Your Individual Situation. Eisenberg Law Office, S.C. 308 E. Washington Ave., Madison, WI 53703 USA (608) 256-8356