Generally, the payments from an insurance company, received after an auto accident is not considered taxable income. The money you receive is typically a reimbursement for damages or expenses and is not a gain and is not considered income for tax purposes. However, there are a few exceptions:
- Property Damage: Payments for repairing or replacing your vehicle are not taxable. This is because the money is simply restoring your property to its original value, not giving you a profit.
- Medical Expenses: Compensation for medical bills and other related expenses from an injury is not taxable. This includes amounts for physical pain and suffering that resulted from a physical injury.
- Lost Wages: If part of your settlement is specifically for lost wages, that portion is taxable. This is because you would have paid taxes on that income if you had earned it from work.
- Punitive Damages: Any money received as punitive damages, which are meant to punish the at-fault party, is always taxable.
If the settlement is for property damages or medical expenses, you may not receive any form or need to report it on your taxes. On the other hand, if you do receive a Form 1099-MISC or Form 1099-NEC for a taxable portion of the settlement (like lost wages or punitive damages), you must report it.
How to Report in TurboTax Online:
- Go to the "Income & Expenses" section.
- Find the "Other Common Income" or "Less Common Income" category.
- Select "Miscellaneous Income, 1099-A, 1099-C" and follow the prompts.
- You'll enter the information from your 1099 form, and the software will guide you through questions to determine the taxable amount.
For more information see:
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Terri Lynn
