Do You Have to Pay Taxes on Your Car Accident Settlement in North Carolina?

Charlotte Injury Lawyer Matt Arnold answers the question: “What is the value of my case?”

If you were injured in a crash and received or are about to receive a personal injury settlement, you may wonder, “Will I have to pay taxes on my settlement?”

Are Car Accident Settlements Taxable in North Carolina?

As a rule of thumb, any money that you receive from your personal injury settlement in North Carolina is not taxable, though some portions of your settlement or award may be subject to taxes.

However, for the most part, you do not have to pay taxes on your car accident settlement because the settlement reimburses you for your medical bills and other out-of-pocket expenses associated with your injury.

When You May Have to Pay Taxes on Your Settlement

Certain portions of your car accident settlement may be taxed. Items that may be subject to taxes include:

Loss of income (lost wages)
Medical expenses (only when you have taken a deduction)
Interest on your personal injury claim
Punitive damages

Loss of Income

Typically, any money that goes toward compensating you for your lost wages will be subject to taxes as income. Lost wages reimbursed through a personal injury settlement are subject to federal and state income tax rates.

However, it is advised to consult with a skilled personal injury attorney to determine what portions of your car accident settlement are considered taxable income.

Medical Expenses (When Deductions Were Taken)

As mentioned earlier, medical expenses reimbursed through a car accident settlement are not subject to taxes. However, there are exceptions to the general rule. One of the exceptions is when you take a deduction for your medical expenses associated with your personal injury claim in the years preceding your car accident settlement or award in North Carolina.

If you have taken deductions, you would have to classify any reimbursement for medical expenses as income. For example, you were in a car crash in 2018 and spent $2,500 on medical bills stemming from a car crash. In your tax filing for that year, you took a deduction for $2,500.

In 2019, you received a car accident settlement that reimbursed $2,500 for your medical bills. Since you have already taken a tax deduction in your 2018 filing, the amount received in 2019 will be subject to taxes.

Interest on Your Personal Injury Claim

In some car accident cases, victims may be entitled to receive interest on their personal injury judgment. Often, this happens when a victim receives compensation through the court system. In North Carolina, any interest on a personal injury claim is taxed as interest income.

Punitive Damages

While punitive damages are rarely awarded to victims of car accidents, you may be eligible for these damages if the defendant’s conduct involved fraud, malice, or willful and wanton conduct. If you receive punitive damages after your car crash in Charlotte or other parts of North Carolina, the punitive damage award will have to be included as taxable income as part of your tax filing.

Consult with a knowledgeable personal injury attorney in Charlotte to assist you with pursuing the compensation you deserve and help you understand what portions of your settlement will be taxable. Contact our attorneys at Arnold & Smith, PLLC, to discuss your particular case. Call (704) 370-2828 to receive a video or phone consultation with our lawyers to explore your legal options or fill out our contact form. Now taking cases throughout North Carolina with offices in Uptown Charlotte, Mooresville and Monroe.

The skilled personal injury attorneys at Arnold & Smith, PLLC are dedicated to maximizing the financial recovery and obtaining justice for every personal injury client injured by another party’s negligence. The issues our personal injury clients may be facing include, but are not limited to, slip and fall injuries, wrongful death, product liability, catastrophic injuries, dog bite claims, car and truck accident injuries, motorcycle injuries, traumatic brain injury (TBI), nursing home negligence, spinal cord injury, boating accidents, and defective medical device injury. Our personal injury attorneys understand the devastating impact such an injury can have on a person’s life, and that the effects so often go beyond physical pain and suffering. The personal injury attorneys at Arnold & Smith, PLLC are dedicated to helping clients determine the strength of their claims, and to aggressively pursuing the means necessary to achieve the best possible end result for each client’s particular situation.

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