Are Georgia Car Accident Settlements Taxable?

Georgia car accident victims are often joyful when they get their compensation cheques. This is because they can finally cover their financial losses from the collision. However, such plaintiffs often have some questions for Georgia car accident lawyers. One such question is whether they’ll have to pay income taxes on the settlement.

This desire for financial certainty is understandable. You’ve just been through a challenging period. In addition, the collision took a toll on both your health and finances. However, an excellent Georgia car accident lawyer can answer all your queries. They can explain whether or not your settlement is taxable. So, it’s always best to hire a lawyer after a collision.

Are Car Accident Settlements Taxable in Georgia?

Yes, you may have to pay income tax on your car accident damages. Fortunately, though, your entire compensation package isn’t taxable. Instead, only a few types of damages are taxable. Below, we explain the tax implications of a car accident settlement in detail.

What Compensation Isn’t Taxable?

Let’s start with the most straightforward issues. First, all compensatory damages aren’t taxable under Georgia law. This is because this class of damages replaces actual losses you sustained from the collision. That is, compensatory damages merely reimburse you for out-of-pocket expenses since the accident. Therefore, you don’t have to pay any income taxes on this class of damages.

Notably, this covers economic and non-economic compensatory damages. Examples of damages under this head include:

  • Medical bills and cost of hospital equipment
  • Future medical costs
  • Loss of earning capacity
  • Cost of domestic services
  • Cost of vehicle repair
  • Price of alternative transportation

Why Aren’t Compensatory Damages Taxable?

The rationale behind this exclusion of compensatory damages from taxation is simple. Suppose you spent $10,000 on medical treatment. Then, the court or insurance company will only award this exact amount. This settlement or award will only help you replace the sum you most likely already spent. So, it would be unfair to pay taxes on money that you’ve already spent.

What Is Taxable?

Some other types of compensation are taxable. Notably, some of them are ordinarily taxable. That is, you’d have had to settle taxes on the sum even if you didn’t earn it from a car accident claim. Below, we examine some of the examples.

Lost Wages

A car accident settlement can contain your lost wages. However, lost wages are only recoverable where the collision prevented you from working. Moreover, if you worked and earned your wages, you’d have to pay your income tax. Suppose you got a lump sum payment for many years of not working. Then, you may have to hand over a hefty sum to the IRS.

Some Non-Economic Damages

Furthermore, some non-economic damages are taxable. Examples would include:

  • Emotional distress
  • Pain and suffering
  • Mental anguish
  • Loss of quality of life

However, you’ll only have to pay taxes in limited cases. That is, these non-economic damages are taxable if they don’t flow from a physical injury. Pain and suffering are usually related to physical wounds. So, you may not have to pay taxes on that portion of your settlement.

Punitive Damages

Georgia courts can award punitive damages in some cases. This class of damages aims to punish defendants for their conduct. In addition, punitive damages in Georgia may be in hundreds of thousands of dollars. Since punitive damages don’t reimburse the plaintiff’s losses, they’ll have to pay taxes on the sum.


Car accident settlements or judgments often accrue interests. This interest can start from the date of filing suit till the date judgment is entered. In addition, delays in paying the judgment amount can also compound interest. This sum would be taxable as “interest income,” though.

Previously-Deducted Medical Bills

Imagine that you already deducted your medical bills from your previous tax returns. Then, you may owe the IRS some money because of any tax benefits you enjoyed from the last deduction.

Finally, it’s noteworthy that these rules will apply to both insurance settlements and judgment sums.

Georgia Car Accident Lawyers Can Help You!

Have you escaped a Georgia car accident? Then, you may be eligible for compensation. Are you worried that you may have to pay significant taxes on your settlement? If you are, it’ll be best to hire a Georgia car accident attorney. Firstly, a lawyer increases your chances of getting the maximum compensation.

In addition, fair compensation means you’ll have significant balances after tax deductions. Only the best Georgia car accident lawyers can get you this result. We can make this possible at Bethune Law Firm because of our decades of experience. So, call us today for a FREE consultation.