This is one of the most frequent questions from clients when deciding on a settlement offer. The short answer in Washington is generally NO taxes are owed on money received in settlement of a personal injury claim.
Compensation for an injury is not considered income for tax purposes. You may be asking what does that mean exactly? According to current IRS law, if a car accident victim obtains a settlement for injuries suffered in an accident, which are paid by another party (for example, from the at-fault driver who hit you), the settlement money is not taxable.
Of course there are always exceptions!
The IRS generally taxes Punitive Damages. What are punitive damages?
Punitive damages are money that a driver is ordered to pay over and above the full value of a case. They are meant to be additional punishment because the conduct of the at-fault person was so bad or outrageous the jury or judge has decided to set an example for every other driver to heed.
The message of punitive damages is to all drivers beware, you better not do this, or you could be faced with owing a huge amount of money.
However, in Washington state punitive damages are not usually available in car accident claims.
When the media talks about huge verdicts from car accident cases, it usually is from another state that allows punitive damages.
If you are thinking about accepting an insurance company's settlement offer but don't have a lawyer, it might be a good idea to give an experienced Washington injury attorney a call to review your case and make sure you're doing the right thing. If you'd like to talk now, call 425-399-7000.