Is a car accident settlement reported as income?

Question

I am getting a setllement from a car accident. Is that taxable or considered regular income? Friends have been telling me it isn't but I am not not sure. It is not a large amount and is under 10K.

Answer 1

No, it is not considered income for tax purposes in most cases. Check with a qualified tax advisor for advice specific to your situation.

Answer 2

Most likely no: Any money in the settlement that is attributed to damage to your vehicle or other personal property is not considered income from the IRS. The same is true for reimbursement for medical expenses, or damages associated with pain and suffering (section 104 of the federal tax code). This is considered return of capital that brings you to a level prior to your accident.

However, if there is any portion of your settlement that is considered punitive damages, or reimbursement for lost income, then that portion is taxable. Punitive damages are those not associated with any loss or injury, but instead intended to "punish" the other party. These would have been stipulated in the settlement.

Since this is a settlement, and a rather small one, it is highly unlikely that any of the settlement is considered punitive damages, however there is always a chance you were reimbursed for lost income, so check that out. But most likely your settlment is not taxable, although it should be reported on your tax return (ask your accountant).

Answer 3

Depends on what it was for. If compensation for your injuries, then no, not taxable. From IRS Publication 17 (download at irs.gov, it's on page 51) - Other Compensation: Many other amounts you receive as compensation for sickness of injury are not taxable. These include the following amounts.
-Compenstory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments.
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If the amount is under $10K, then it's probably compensation, so no, not taxable. If you had gotten punative damages , say because somebody did something to you deliberately, is taxable; or if part of the settlement was compensation for lost wages, might be taxable (see page 88 same document). If you're not sure, consult a CPA.

Answer 4

I just had this very same question. After doing reserach we determined that it depends on how the court states the ruling. Chances are you won't have to.
Did you only get enough money to fix your car plus lost wages, or was a majority of it punitive damage? I guess those get taken into account.

Answer 5

No, the money is not taxable and is not reported on your income taxes. Basically, it's "free money."

Answer 6

Any 'lost wages' of punative damages are taxable. Medical expences and repair costs are not.
http://www.irs.gov/

Answer 7

No, unless part of it is punitive damages.

The Punitive damages is the only thing you report!

Insurance is to get you back where you were before the damage so if you car was worth 5G and you had a 5G medical bill and you got 10G you are right back where you were before the accident, they is no gain.

Answer 8

No. It's not income. The settlement makes you whole.

Answer 9

Money one from a legal settlement of any kind (unless it is income related) is not subject to income tax.

Answer 10

Sorry pal, but you have to declare it. If you don't the IRS will be very upset with you when they find out. The only reason their portion isn't taken out beforehand is because it's below 10 grand. They expect you to act honesty and add it to your income, and pay the appropriate tax. If it had been over 10 grand, the law would have required the company issuing you the check to first take out federal tax, and to provide you with a receipt saying so.