If you’ve received a car accident settlement in Florida—especially in places like New Port Richey, Trinity, or Land O’ Lakes—it’s normal to wonder if the money is taxable. After all, it’s already been a stressful process dealing with injuries, insurance, and lost time. The last thing you want is to get blindsided by the IRS. The good news? Most personal injury settlements aren’t taxed. But there are a few exceptions that could impact what you owe.
Let’s break it down.
What Parts of a Settlement Are Not Taxed?
When someone gets hurt in a car accident, the money they receive from a settlement usually falls into a few categories. According to the IRS, most compensation for physical injuries or physical sickness is not considered taxable income. This includes:
- Medical bills related to the accident
- Emergency room visits and surgeries
- Follow-up care, rehab, or therapy
- Pain and suffering caused by physical injuries
- Repairs or replacements for damaged property (like your vehicle)
This part of the settlement is meant to make you whole again—not to give you extra income. Because of that, the government generally doesn’t take a cut.
What Parts of a Settlement Are Taxed?
While most of your settlement may be off the IRS’s radar, some parts can be taxed. Here’s what to watch out for:
1. Lost Wages
If part of your settlement is paying you back for missed work, the IRS sees that just like a paycheck. That money gets taxed the same way your regular income would. This is especially common if you were out for weeks or months because of the accident.
2. Interest on the Settlement
Sometimes, cases drag on. If your settlement includes interest for the time it took to resolve things, that interest is taxable. Think of it like earning interest from a bank account—the IRS wants a piece.
3. Punitive Damages
Punitive damages are rare in regular car accident cases. But if they’re awarded, they’re fully taxable. These are meant to punish the at-fault driver for outrageous behavior, not just cover your losses.
4. Emotional Distress (Without Physical Injury)
If you were emotionally impacted by the crash but didn’t suffer physical injuries, any money you receive for emotional distress may be taxed. However, if that distress is directly tied to a physical injury, it’s usually not taxable.
How to Protect Yourself from Tax Surprises
To avoid unexpected tax bills after a settlement, here are a few simple steps:
- Talk to a Tax Professional: A CPA or tax advisor can break down exactly what’s taxable and what’s not in your specific situation.
- Keep Your Settlement Breakdown: Make sure you get a clear outline of what each part of your settlement covers. That helps your accountant (and the IRS) understand how to classify the money.
- Hang on to Receipts and Medical Records: These help prove what part of your settlement went toward medical expenses or injury-related costs—things the IRS won’t tax.
No State Income Tax in Florida Helps
There’s one piece of good news that’s unique to residents of New Port Richey, Trinity, Land O’ Lakes, and the rest of Florida: our state has no income tax. That means even if you do owe federal tax on a portion of your settlement, you won’t have to pay a dime to the state of Florida.
But remember, the IRS still expects you to report any taxable income on your federal return. Failing to do so can lead to audits, penalties, and headaches you don’t need.
We’re Here to Help You Understand Every Part of Your Case
At Weber Injury Law, we know the stress and confusion that comes after a car crash. Dealing with insurance companies is hard enough. Add tax concerns to the mix, and it can feel overwhelming. That’s why we take the time to explain every part of the settlement process—and we work with you to make sure nothing catches you off guard.
If you’ve been in a car accident in New Port Richey, Trinity, or Land O’ Lakes and have questions about your settlement or how it might affect your taxes, don’t wait. Call Weber Injury Law at (727) 297-2032 or reach out through our secure contact form at weberinjurylaw.com/contact. We’re here to protect your rights and your financial future.