In the event you are injured or your property is damaged in a car accident, you might receive a settlement from the other driver’s insurance. This money can go toward repairing or replacing your vehicle, your medical bills, and other damages you sustained as a result of the accident. Howoever, you might also be left wondering if car insurance settlements are taxable so you are ready for this when tax season comes around.
Are car insurance settlements taxable?
As much as we would like to give you one answer to this question, the truth is there are a number of factors that are taken into account in order to answer it.
The IRS can tax income that makes you wealthier before. So, in the event your settlement exceeds whatever your lost wages, medical bills, and other damages cost you, any surplus could be taxed. But in the event you receive a $10,000 settlement when your expenses were $12,000, this isn’t likely to be taxable.
As for the specifics when it comes to coverage for different damages, this also plays a role.
Here are some guidelines to keep in mind.
- Car insurance settlements for lost wages is taxable
- Auto insurance settlements for repair or replacement of car or other property is tax-exempt
- Car insurance settlements for medical bills are tax-exempt
- Tax laws vary for car insurance settlements for pain and suffering
As you can imagine, there is a lot more that goes into answering whether car insurance settlements are taxable. Please do not substitute this blog post for legal advice, but use it as a starting point for some of the questions you might have.
Additionally, if you have any other questions about car insurance in Salt Lake City, we are here to help! Call us today and we will get started.