Auto Insurance
Taxes and Tax Preparation

Do you pay taxes on an auto insurance settlement?

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Answered 2010-05-14 14:29:57

I had a huge settlement from an auto insurance company and it was not taxed. However I believe that was because my attorney negotiated a type of settlement that made it non-taxable. I thnk it has to be considered "punitive damages" or something like that for it not to be taxed.

Update - Generally, amounts paid for personal injury and property damage are NOT taxable. Amounts paid for punitive damages and loss of income ARE taxable.

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No. This type of settlement is not generally taxable.

The auto insurance settlement wouldn't be taxable unless you realize a gain from it. Being on Social Security Disability doesn't exempt you from paying any taxes that may be due as a result.

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A settlement is usually split into two parts, recovery of damages sustained, and pain/suffering (putative). For recovery of costs, the settlement is not taxed. For pain/suffering it is taxed.

No, the insurance settlement is considered compensation for a loss, not income.

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