If you are pursuing compensation for your injuries after a car accident, you are no doubt looking forward to the settlement so that you can pay your bills and get your life back on track. However, you may also be concerned about whether or not you will need to pay taxes on your settlement payment. According to the IRS tax code, only certain forms of compensation received as a portion of your car accident settlement may be subject to tax. Those taxable settlements include:
- Compensation for lost wages
- Punitive damages
- Compensation for emotional suffering not resulting from physical injuries
- Interest paid on your settlement amount
The remainder of the settlement, such as reimbursement for medical expenses, will not be taxed as income. In many cases, this non-taxable compensation makes up the majority of the settlement. These non-taxable damages are typically simple to prove using receipts and medical reports.
The tax obligation, if you have one, is not taken care of for you. Instead, you will receive the full settlement, after which you will need to claim the settlement on your taxes in order to pay any required taxes resulting from your case. If you have any questions, your attorney can offer you some assistance with obtaining the necessary forms and amounts.
Taxable Settlements and Financing
As your case drags on and financial pressures mount, you may find yourself in need of cash now while you wait on your case to conclude. A pre-settlement financing company offers one potential answer to this issue. Settlement financing companies are not regulated by the Consumer Credit Protection Act. This allows them to change their fees and interest rates based on the particulars of each case. It also means that there is no one uniform method of handling taxable settlements. Generally speaking, however, if your case includes or is exclusively made up of taxable claims, then it is likely to reduce the amount the company will advance to you. This is because the company advances a percentage of your predicted future settlement amount and may choose to deduct the potential taxes from the award amount.
Pre-settlement financing companies also gauge the amount of cash to advance to you based on the quality of your case and the amount you are likely to collect. Some damages, such as reimbursement for medical bills, are easy to calculate and to prove. Other damages you may claim, such as emotional suffering, are much more difficult to prove and therefore to win in court, so financing companies may be less willing to advance you a significant percentage of your claim. It is also worth noting that punitive damages are rarely awarded in car accident cases and will not be considered by the financing company.
Consult With Us Today
Your attorney’s cooperation will be instrumental in successfully securing pre-settlement financing. Capital Financing will need information from your attorney to determine whether or not to fund your case, and your attorney can help you to review all documents prior to signing.