Car accidents can cause serious injury and damage so victims should always pursue legal action to collect damages. Depending on the type of compensation that you are awarded, car accident settlements can be taxed. Contact a Middlesex County, NJ car accident attorney to find out how you can pursue legal action and compensation for your injuries today.
What Damages Are Awarded in Car Accident Settlements?
The types of damages that can be awarded for a personal injury settlement are broken up into two general categories:
- Compensatory
- Punitive
Compensatory damages are designed to reimburse the victim for actual losses. They offer justice for the victim and compensate them for the expenses that they incurred, whether economic or non-economic. Economic damages refer to the financial compensation that an individual can receive to make up for monetary losses that they suffered due to their accident and injury. Non-economic damages compensate the victim for their general losses and lifestyle changes that they do not have control over. These damages do not generally have a set numeric value.
Punitive damages aim to punish the defendant more than reward the victim. They have very little to do with the plaintiff except that they are the recipient. When defendants are ordered to pay punitive damages it is in an attempt to further penalize them and serve as a warning to the individual and others not to engage in similar behavior.
Will My Settlement Be Taxed?
Parts of your settlement may be taxed while other parts may not. In general, compensatory damages are left untouched while punitive damages are subject to taxation. However, every accident is unique so there is no telling exactly what the situation will be in any given case.
Compensatory
Because economic damages reimburse the victim for the expenses that they were forced to pay as a result of the accident, that money is not taxed. Suppose, for example, that your medical bills, loss of income, and property damage all add up to $15,000. The court awards you $15,000 in compensatory damages that you are to use to pay those expenses. However, if the money is taxed you will not end up with the $15,000 you need. You may end up with $12,000 for example, and not have enough money to cover your costs.
Non-economic damages are also typically left alone, but they can be taxed under certain circumstances. As long as the compensation is associated with the victim’s injury or ailment then it will not be considered taxable. For example, non-economic damages for loss of enjoyment of life due to a permanent disability relate to the bodily harm that the victim sustained so it will not be taxed.
Punitive
Because punitive damages are simply awarded as another way of punishing the defendant, that money is usually taxed by the government. Car accident settlements generally do not include punitive damages but in the case that they are, only the money associated with these damages will be subjected to taxation.
Contact a Personal Injury Attorney
The details surrounding a car accident settlement and compensation can be complex. Reach out to an experienced personal injury attorney at Stathis & Leonardis, LLC for skilled assistance.
