Representing the Rights of Injured Individuals Law Offices of Ronald A. Ramos
Law Offices of Ronald A. Ramos

Will I Be Taxed On My Texas Auto Accident Settlement?

Non Taxable Settlement Compensation

tax-form A large portion of legal compensation is designed to make the injured victim ‘whole’. The theory of making a victim ‘whole’ is a key concept for understanding how car accident settlement compensation will be taxed. Essentially, compensation is meant to put the injured victim back in the position that they would have been had the car accident never occurred. Under the Internal Revenue Service tax code, the portion of your settlement that is meant to cover your losses, will generally not be subject to state or federal taxation.

  • Property damage: If your vehicle was damaged, or totaled, you will not be taxed on compensation meant to cover that damage.
  • Medical expenses: Compensation for medical expenses, including rehabilitation costs, will generally not be taxed. This portion of the settlement is also designed to make you ‘whole’. But, there are some exceptions to the general rules here. If you have already taken a tax deduction related to your car accident medical expenses, then you may be subject to some taxation on that part of your accident settlement.
Taxable Settlement Compensation
  • Lost wages: Car accident compensation that is included because of lost wages will be subject to taxation. The theory behind this is that you would have been taxed on those wages had you never been injured in a car accident. Therefore, making you ‘whole’ means that you will still owe taxes on those wages.
  • Punitive damages: Compensation for punitive damages are also subject to taxation. In Texas car accidents, punitive damages are only awarded when gross negligence is involved. The most common example is a drunk driving accident. Texas juries are known to award injured DWI accident victims punitive damages. Unlike most other forms of compensation, punitive damages are not designed to make the victim whole. They are designed to punish the bad actions of the negligent party. Therefore, the IRS treats compensation for punitive damages similarly to normal income.
Pain and Suffering versus Emotional Distress

In some Texas car accident cases, you may be entitled to compensation for pain and suffering, emotional distress, or both. This is the most complicated car accident settlement tax issue. The two concepts may sound similar, but there is an important legal distinction. Further, these types of compensation are generally taxed differently.

  • Pain and suffering: Compensation for pain and suffering is excluded from taxation under the IRS physical injury rules.
  • Emotional distress: Damages for emotional distress, such as depression and anxiety are subject to taxation. This is because non-physical injuries are not included in the IRS tax exemptions. However, if you have medical expenses due to your mental distress, those expenses will be excluded from taxation.
Contact Our Office Today

It is important to understand the tax implications of your car accident settlement. An experienced Texas car accident attorney can help you prepare and structure your settlement with tax concerns in mind. If you have any questions about car accident settlement taxation, or car accidents in general, please contact our San Antonio office at (210) 308-8811 to learn more.

Client Reviews
I was in a minor car accident when I first moved to San Antonio. I wasn’t sure if I needed a lawyer but I eventually contacted theLaw Offices of Ronald A. Ramos, P.C. and I’m glad I did. I highly recommend this firm! A.W. - Online Review
Mr. Ramos (Law Offices of Ronald A. Ramos, P.C.) and his staff were GREAT!! I went to their office after a major car accident, and I was not getting anywhere with the insurance company, He and his staff helped me [get] way more than what I was offered by the insurance company its self. N.G. - Online Review
The people at the Law Offices of Ronald A. Ramos, P.C. couldn’t have been any more helpful. Their friendly service team has so much knowledge to offer when it comes to seeking legal advice in a variety of different subjects. They come highly recommended if anyone is looking for any sort of help! M.C. - Online Review
Mr. Ramos has secured a spot as one of the best trial attorneys in San Antonio. His extensive knowledge of the law, ability to connect with jurors, and his admirable reputation among both judges and attorneys make him an absolute asset to the legal community. If you have the opportunity to retain him as legal counsel, consider it a huge privilege. Daniel J. Palmer - Lawyer in San Antonio, TX
Mr. Ramos and his staff are very diligent and effective in litigating personal injury claims and other torts. His representation of clients have resulted in successful outcomes. I myself will refer any cases that will require litigation and a greater expertise. Jesus Vargas - San Antonio, TX Attorney