Are Car Accident Settlements Taxable in New York?

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injured driver after a traffic accident

Were you seriously injured in a car accident caused by someone else’s negligence in New York? If so, you could be entitled to claim compensation for damages you suffered in the accident. If you successfully secure a settlement, you might be wondering whether or not it will be subject to taxes.

In New York, the majority of car accident settlements are not taxed. Whether or not you must pay taxes on your settlement depends on a few factors, including the type of damages you recovered.

Types of Damages in Car Accident Cases

First, it’s essential to establish that New York is a no-fault state. All motorists must carry a certain amount of no-fault insurance with them, also known as personal injury protection or PIP. In most cases, individuals will turn to their PIP policies for coverage after an accident, regardless of fault. Through PIP, you can recover compensation for medical costs and lost income.

However, if you sustained a severe injury and you’ve exhausted your policy limits, state law permits you to step outside the no-fault system and bring a personal injury claim or lawsuit against the individual who caused your accident. You might be eligible to seek additional compensation through a third-party claim or lawsuit.

There are three main types of damages available in car accidents: economic damages, non-economic damages, and punitive damages.

Economic Damages

Economic damages are essentially financial losses you suffered due to the accident, such as:

  • Hospital bills
  • Rehabilitative care
  • Prescription medication costs
  • Mental health services
  • Medical equipment expenses
  • Doctor’s visits
  • Lost wages
  • Future lost income
  • Long-term care costs
  • Other costs related to your injuries
  • Funeral and burial expenses if you lost a family member

Economic damages are designed to cover any costs related to treating your injuries. Economic damages typically cannot be taxed because they are compensable losses. Since someone else caused the accident that resulted in your injuries and expenses, you are legally entitled to recoup your present and future financial losses.

However, you will need to report any previously deducted medical costs as income to the IRS if you later recover compensation for those expenses.

Non-Economic Damages

 Non-economic damages include any non-financial losses you suffered in the wake of the accident. Unlike economic damages, these losses are not tangible. The primary purpose of economic damages is to compensate you for the physical and emotional pain and suffering you endured due to the at-fault party’s negligence or misconduct.

Common examples of non-economic damages include:

  • Pain
  • Emotional distress
  • Mental anguish
  • Anxiety and depression
  • Post-traumatic stress disorder (PTSD)
  • Loss of enjoyment or quality of life
  • Loss of consortium
  • Loss of future income and domestic services if you lost a loved one

If you aren’t able to do everyday activities without feeling pain or suffering from symptoms of PTSD following an accident, you deserve to be compensated for those losses.

In New York, there is no limit to the amount of non-financial damages you can recover after an accident. While you would likely not be able to obtain non-economic damages through an insurance claim, you could do so by filing a personal injury lawsuit against the at-fault driver’s insurance company. At trial, a jury or judge would decide whether to award you non-financial damages for pain and suffering and what amount.

Non-economic damages are not taxable. That’s because they are designed to reward you for the pain and suffering you would not have had to endure if the at-fault driver had acted responsibly.

Punitive Damages

Punitive damages are not frequently awarded, but you might be entitled to recover them if the at-fault motorist was extremely negligent or acted with malicious intent. Punitive damages are designed to “punish” the at-fault party for especially egregious behavior and deter similar actions in the future.

Unlike economic and non-economic damages, punitive damages can be taxed. However, it is rare for a jury to award punitive damages to a plaintiff because the burden of proof is so high. Most plaintiffs will typically recover compensatory damages (economic and non-economic losses) only.

What Factors Could Impact My Settlement?

Numerous factors could affect the value of your settlement amount in addition to taxes. Common factors that influence settlement amounts include:

Negligence – To bring a successful claim or lawsuit, you (or your attorney) will need to gather evidence that demonstrates the at-fault party’s liability for the accident. You must prove that the driver who hit you acted negligently. Negligence will often include:

Partial liability – New York is a pure comparative fault state. This means that even if you were partially at fault for the accident that caused your injuries, you could still recover compensation. However, the court would reduce the amount you ultimately recover based on your percentage of fault for the accident.

Statute of limitations – New York has a three-year statute of limitations on personal injury cases. If you are seriously injured in a car accident, you have three years from the date you were injured to file a lawsuit against the at-fault party. If you do not file a lawsuit in that time period, the court will probably dismiss your case, and you will likely forfeit your right to pursue compensation through the legal system. For wrongful death lawsuits, you have two years to initiate legal action.

Obtaining the full and fair amount you deserve can be challenging, especially if you try to go it alone. You could end up losing money if you fail to present a strong case before the court. That’s why it is critical to hire a seasoned personal injury attorney to handle your case.

Contact Finz & Finz, P.C. Today

The New York car accident attorneys at Finz & Finz, P.C. have decades of experience helping those who’ve been injured in car accidents seek the full and fair compensation they deserve. If you’ve been injured, let us help guide you through the process of seeking justice and accountability.

Call us at 855-TOP-FIRM today for a free, no-risk consultation, or contact us online to discuss your case and your legal options.

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Finz & Finz, P.C. is a New York and Long Island personal injury law firm based out of Mineola, NY. It was founded in 1984 and is highly rated, with many honors and awards of excellence.