The short answer is no. The IRS only taxes income that causes your net worth to increase. Insurance settlements for auto injury cases are intended to make up for losses, not to make you richer.
Whether it be the compensation amount for your physical injuries or for your vehicle repair, you shouldn't have to pay taxes on any of it. And it doesn't matter if your settlement was out-of-court or the result of a trial.
When it comes to compensation related to emotional distress, if - and only if - it originated from the physical injury from an automobile accident, it is also non-taxable. According to the IRS:
"The proceeds you receive for emotional distress or mental anguish attributable to a personal physical injury or physical sickness are treated the same as proceeds received for Personal physical injuries or physical sickness above."
For more information on whether or not insurance settlements related to your case are taxable, visit IRS.gov.
When it comes to compensation related to emotional distress, if - and only if - it originated from the physical injury from an automobile accident, it is also non-taxable. According to the IRS:
"The proceeds you receive for emotional distress or mental anguish attributable to a personal physical injury or physical sickness are treated the same as proceeds received for Personal physical injuries or physical sickness above."
For more information on whether or not insurance settlements related to your case are taxable, visit IRS.gov.
* Alisa Wilkes is a car accident lawyer in Jacksonville, FL and does not intend to provide tax advice. You should always consult a tax professional if tax advice is needed.