You have gone through the process of your Connecticut car accident case, and you either have come to an agreement on a settlement or a judgment has been handed down. From here, you may have questions, including: Will my compensation be taxed?

In this article, we will explain the process of a personal injury settlement, as well as income tax considerations you should think about and go through with your lawyer.

The CT car accident lawyer you retain can give you advice specific to your case. We urge you to seek experienced counsel if you've been in a car accident. The lawyers at Brandon J. Broderick, Attorney at Law can provide you with sound advice and representation.

Are Settlements in Personal Injury Cases Taxable?

The verdict in a Connecticut personal injury case is typically exempt from federal and state taxes. According to the IRS, reimbursement for personal illnesses or injuries is not included in the taxpayer's gross income. The reward is not taxable, regardless of whether you reached a settlement through negotiation or if it was included in a jury verdict.

Personal Injury Settlements: What Is Taxable?

There are certain exceptions to the general rule that a personal injury settlement is not taxable. This includes:

Punitive Damages

Different types of damages may be granted in your personal injury case. The majority of claims include compensatory damages, which cover things like lost wages, medical costs, and pain and suffering. Damages of this nature are not taxed.

Punitive damages, on the other hand, are normally awarded in cases involving the most wilfully negligent actions and are intended to stop others from being injured in the same way. Punitive damages awards are subject to taxation. 

Interest

For the period that your case was pending, you might be eligible to earn interest as part of your settlement claim. For instance, if you filed your claim on July 1, 2022, and it was settled on July 31, 2023, interest would be calculated on your settlement amount for 18 months. Your interest payment is taxed.

Other Exceptions

Compensation from personal injury settlements are not taxable for physical injuries or illness, which is one exception to the federal tax code. The compensation you get would be taxable if your claim is limited to emotional harm. The damages would be taxable if your lawsuit was brought using breach of contract as the legal defense. 

With an experienced personal injury attorney, your tax responsibility should be made very clear. You should make sure how much of the settlement amount carries tax liability.

Injured in a Connecticut Car Accident? Call Brandon J. Broderick Today

At Brandon J. Broderick, Attorney at Law, our core values include outstanding client service, compassion, and obtaining a fair resolution in your case.

We have years of experience and our Connecticut car accident lawyers can help you through almost any car accident case. We have offices across the state of Connecticut, as well as the surrounding states of New Jersey, New York and Pennsylvania.
Call us today for a free case evaluation. We look forward to looking into your case and helping you turn things around.