Nevada doesn’t have an income tax, but the federal government does. Whether or not a Nevada car accident settlement is taxable depends on the types of injuries you’ve suffered and the damages you’re awarded. Generally speaking, most of a personal injury settlement or jury award won’t be taxable under current IRS regulations, but some of your financial recovery may be.
It’s important to work with an experienced Las Vegas car accident lawyer who can help you fight for maximum compensation and then structure your recovery to reduce your potential tax liability.
What Determines If a Personal Injury Settlement is Taxable?
The IRS explains that, under IRC Section 104(a)(2), a taxpayer can exclude from gross income “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or physical sickness.”
As long as you’ve been physically injured in a car accident in Nevada, the following compensatory damages should not be subject to taxation under the Internal Revenue Code:
- Present and future medical bills
- Rehabilitation
- Physical therapy
- Nursing assistance
- Property damage
- Reimbursement for out-of-pocket expenses
- Pain and suffering
- Emotional distress
- Reduced quality of life
- Loss of consortium
- Inconvenience
- Chronic pain
If you got hurt in a work-related car accident, benefits awarded in a workers’ compensation claim will also be excluded from your taxable income.
If your injuries were strictly emotional, damages may be subject to taxation at the federal level. Only damages related to physical bodily injury or illness are subject to exclusion from taxable income.
What Parts of a Car Accident Settlement Are Taxable?
Some damages awarded to car accident victims in Nevada are taxable, even when a victim’s claim was based on physical injuries that were sustained in a crash.
There are two notable categories of taxable damages: lost wages and punitive damages.
The IRS reasons that compensation for lost wages and disability should not be excluded from taxable income because they’re a replacement for taxable compensation a victim would have earned if they hadn’t been injured. So, wage-related damages can be taxed by the federal government. The rate will depend on your total taxable income for the year, including your compensation for lost income.
Punitive damages are also taxable. In Nevada, punitive damages can be awarded by a jury when there is clear and convincing evidence that a defendant was guilty of “oppression, fraud, or malice.” Often, a jury awards punitive damages when a plaintiff is the victim of an intentional tort or an act of gross negligence. Since punitive damages are intended to punish, rather than compensate the victim, they’re subject to taxation.
Call Benson & Bingham Accident Injury Lawyers for Help Making the Most of Your Nevada Car Accident Settlement
Our Las Vegas personal injury lawyers understand that every cent counts after an accident.
We’re not just here to help you take on an insurance company and fight for maximum compensation; we’re also here to help you structure settlements and jury awards to minimize your tax liability.
Contact our Las Vegas law office to schedule a free consultation today.