You may be relieved to learn that most personal injury settlements in Indiana aren’t taxed. Typically, payments for medical expenses, car repairs, and lost wages are excluded under 26 U.S. Code § 104(a)(2).
As Indianapolis car accident lawyers, we’ve seen many different types of settlements, and it’s important to know that some portions of a settlement may be taxed. Identifying taxable damages in car accidents can help you plan for your financial future.
Tax Implications for Car Accident Settlements in Indiana
If your settlement compensates you for losses you sustained because of physical injuries, it’s generally not counted as taxable income, according to the Internal Revenue Service (IRS). Payments for property damage and lost earnings tied to your injury are also exempt.
Car accident settlement taxes can arise when your payment includes compensation for emotional distress unrelated to physical injuries or accrued interest before your check is issued. In those instances, the IRS may see those amounts as taxable income.
You could be required to pay taxes on the amount you receive in a personal injury case for any of these items:
- Punitive damages – These are meant to penalize the at-fault party and may be taxable under federal and state rules.
- Interest – If the settlement collects interest while the case is pending, the accrued sum could be taxable.
- Non-physical injuries – Emotional distress unrelated to a physical injury could trigger tax obligations.
How Indiana State Laws Impact Settlement Taxes
Are settlements taxable in Indiana? Indiana generally follows federal rules, taxing any portion of a settlement the federal government considers taxable.
Under Indiana Code § 34-51-3, punitive damages can be awarded for egregious behavior and may be taxed as income. Our team can determine whether these damages are available in your case, explain their tax impact, and structure your settlement to help you avoid surprise tax bills.
The Role of Federal Tax Laws in Your Settlement
Federal rules – such as those under 26 U.S. Code § 104(a)(2) – classify many personal injury damages as non-taxable when they address actual bodily harm. If you’re compensated for lost wages tied directly to your physical injuries, that part of the settlement is also non-taxable at the federal level.
If your settlement includes money for emotional distress unrelated to physical injuries, the IRS may tax that portion as income. Our lawyers can analyze each part of your settlement to advise you of any potential tax burdens.
Get Help from Our Indiana Car Accident Lawyers Now
At Craig, Kelley and Faultless LLC, we’ve stood up for injured people across Indiana since 1999. Over the decades, our practice has expanded to include attorneys and staff who share our commitment to personal, professional assistance.
We understand that tax questions can add to your worries after a crash. Our car accident attorneys in Indianapolis can explain the tax status of each part of your settlement. We give our clients our personal cell phone numbers, making sure you can reach us anytime with questions or concerns.
If you’re unsure about the tax implications of your case, we’re here to help. Contact Craig, Kelley and Faultless LLC today, and let’s discuss how we can support you through every part of your personal injury claim, from figuring out which portions might be taxed to taking steps that protect your health and finances. We’re here to treat you the way we’d want our own families to be treated.
