I am about to settle on a car accident claim. In this claim will be an amount of money to compensate me for work time lost going to my doctor's appointments.
In researching this, I seem to find conflicting opinions. Most seem to indicate that I will have to pay income and self-employment taxes on the wages lost compensation.
However, I did find an IRS audit guide from 2011 at https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf On page 9,in the first paragraph, it says, "The Service has consistently held that compensatory damages, including lost wages, received on
account of a personal physical injury are excludable from gross income with the exception of
punitive damages."
in the second full paragraph, it gives an example of an accident claim which they say illustrates the usual meaning of "on account of personal injuries" In summary, it mentions what would and would not be excludable. Here it says, "Finally, the recovery for lost wages is also excludable as being “on account of personal injuries,” as long as the lost wages resulted from time in which the taxpayer was out of work as a result of her injuries. "
But this seems to fly in the face of everything else I've read here on the forums and elsewhere on the web. I want to say that an IRS document supercedes everyone's opinion. As I'm sure it does, so I guess what I am asking is: Does this document say what I think it says, namely, that I will not owe taxes on the wages lost portion of my settlement? Or am I taking this out of context?
I would obviously like to not have to pay taxes on this. But what I really want is to not have any surprises come tax time next year. I would pay estimated taxes on this, if I have to.
Thanks for any help you can give.
Videot7
