Lost Wages/Profits


If you receive compensation for wages lost due to time off work after your accident, that money is not considered compensatory. Had you not been injured in a car crash, you would’ve been working to earn this money, and it would’ve been taxable income; therefore, this portion of your award is taxable and should be claimed on your return.

Business owners

If a portion of your settlement reimburses you for profits lost due to your inability to operate your business after your accident, that portion is considered taxable business income and should be claimed on your tax return.

Pain and Suffering

Your compensation for pain and suffering is generally not taxable as long as you can show that it resulted directly from the injuries you sustained in the accident. An experienced lawyer can use your medical evidence to demonstrate the connection convincingly to the insurance company or the court.

Emotional/Psychological Trauma

This is a little bit trickier than physical pain and suffering. Emotional/psychological trauma might not be taxable if you can show that it reasonably resulted from the injuries you suffered in the accident. For example, if your car was hit by a semi-truck on an Interstate highway, you might have sustained catastrophic injuries and now feel terrified to drive on the Interstate with trucks racing by at high speeds. As a result, you might have to take other, slower routes to get where you’re going each day. 

Your attorney could call in an expert witness like a psychiatrist or psychologist to testify that you’re suffering from post-traumatic stress syndrome (PTSD) as a direct result of your accident. If you don’t establish this kind of connection convincingly, you might have to pay taxes on the portion of your settlement that compensates you for emotional/psychological trauma. The services of a lawyer are highly recommended in such a case.

Punitive Damages

In some cases, you might be awarded punitive damages if the driver who caused your accident did so intentionally or through very reckless behavior—like drunk driving. The court could order the defendant to pay you extra money beyond your compensatory damages. Punitive damages are generally considered taxable and should be claimed as “other income.” 

Dirk J. Derrick
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South Carolina Lawyer Dirk Derrick helps victims recover from car accidents, personal injury & wrongful death.