Q&A - Sapien Law Albuquerque

Do I Have to Pay Taxes on a Personal Injury Car Collision Settlement?

In general, you do not have to bear the burden of paying taxes on your personal injury settlements. A settlement usually pays for medical expenses and repair bills. These are charges that do not involve the Internal Revenue Service. However, a portion of the settlement may be subjected to taxation if the settlement pays for long term emotional damages and loss of income.

Repair Bills

Settlement money received to repair or replace your automobile is not taxable. You can use funds from a car collision settlement to repair your car, buy a new one, or deposit it in your savings account. The money is not subject to taxation because it is meant to replace the lost value of an asset and not to make profit. In addition, any settlement funds meant to replace or fix property that was damaged during the accident are not taxable.

Medical Expenses

Compensation provided for medical expenses and injuries are identified as compensatory and general damages. These funds are not subject to taxation. In addition, settlement funds will not be taxed if they are related to future medical expenses or a particular medical bill. Any portion of the settlement that pays for past, present and future pain, suffering, and physical harm is safe from taxation because the pain and suffering was instigated by injuries sustained in the auto collision.

Mental Anguish and Emotional Distress

While settlement for pain and suffering caused by a collision is not taxable, settlement payments for mental anguish and emotional distress may be taxable. The Internal Revenue Service considers settlements for mental anguish and emotional distress as taxable because they are not associated with physical injuries. Any funds received because of anxiety, emotional distress, and post-traumatic stress may be taxable. However, if you use part of your settlement to pay a mental health provider to help you deal with mental anguish and emotional distress as a result of the collision, compensation related to the treatment cost is not taxable.

Settling a Personal Injury Case

Settling a personal injury case involves signing a release of liability against the other party in exchange for a specific amount of money. A personal injury lawyer can represent you in a settlement negotiation before, during, and after trial. In most settlements, the parties may agree to a lower amount than what your attorney asks for, but more than the amount the other party wishes to pay. Both parties often work towards negotiating a settlement to eliminate the uncertainty of a jury decision.

Personal Injury Settlements

Personal injuries like sprained ankles and knees can be caused by slip-and-falls, auto collisions and medical malpractice. Settling your case for the amount initially demanded by your personal injury lawyer may not be possible. However, your trial attorney may provide you with several options for your settlement.

Calculating Your Possible Settlement

Personal injury cases are all different regarding the value of a personal injury settlement. The evaluation of your case will include your facts, evidence and circumstances. Some of the legal damages you may be entitled to include the total cost of your medical bills to date, your property damage, lost wages, expected medical costs among other relevant costs. The sum of these factors is referred to as your economic loss.

Contact Information

OFFICE: (505) 842-5979

FAX: (505) 842-6002

ADDRESS: 1100 2nd St NW,
Albuquerque, NM 87102

Albuquerque, NM 87125


Monday – Thursday
8:30am – 12pm & 1pm – 4:30pm

8:30am – 12pm & 1pm – 3:30pm

Evening and weekend appointments
are available upon request.

Phillip G. Sapien
Rated by Super Lawyers

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