Can The Taxman Claim A Share Of My Accident Settlement?

This is a question I am asked almost every time I hand a client a settlement check at the conclusion of their case. The simple answer is no, you do not have to pay taxes on your portion of a personal injury settlement. Of course, in the legal world there are no such things as absolutes and there are always exceptions to every rule. But in approximately 99% of personal injury claims, especially claims arising from car and trucking accidents, there are no tax ramifications. The most common exception is when a claim for lost wages is such a huge part of an injury claim that the settlement is more about the lost wages than the injuries, as in a case with a permanent disability or wrongful death.

Lost wages are typically measured in hours or days, for recovery time and time spent at doctor’s appointments. These settlements are normally not taxable because the majority of the claim is based upon a personal injury. For instance, if your hand was crushed in a trucking accident you have clearly suffered a severe injury, and you have probably missed some time from work while your hand healed. You would not be liable for any taxes for your share of the settlement. But if you happened to be a brain surgeon and you were never able to perform surgery again, you would have a lost wages claim for the rest of your working life, maybe 30+ years, an amount which would dwarf your injury claim, and may result in some tax liabilities.

Where you more often see taxes on settlements become an issue is when the claim itself is based on wages, such as a wrongful termination or workplace discrimination case, where the majority, if not the entire claim, is for lost wages, both past and future. If you have any questions about potential taxes for your particular claim, ask your attorney.



Earl K. Straight serves victims of Texas car and truck accidents in Austin, Round Rock, Bastrop, Cedar Park, Buda, Kyle, Taylor, and elsewhere in Travis County, Williamson County, Hays County, Lee County, and Burnet County, including accidents on I-35, Highway 1 (Mopac Expressway), Highway 183, and other Texas roadways.