My mother was killed in a car accident caused by an uninsured driver. My father is now getting a sizable settlement from his auto insurance company based on his policy coverage for uninsured or underinsured motorists. Both parents were retired and no longer making enough money to make it necessary to file state or federal taxes.
Will my father need to pay taxes on this lump sum payment? How does the payment break down? Thank you for any information you can provide.
Disclaimer: Our response is not formal legal advice and does not create an attorney-client relationship. It is generic legal information based on the very limited information provided. Do not rely upon the information in our response, or anywhere else on this site, when deciding the proper course of a legal matter. Always get a personalized case review from a local attorney.
IRC section 104(a)(2) addresses income exclusions for taxing personal injury settlement payments. In the case of your father, the amount of the settlement which covers your late mother’s medical bills, out-of-pocket expenses, funereal expenses, and other legitimate expenses directly related to the death of his wife are not taxable.
However, any funds paid in the settlement which are not reimbursement for legitimate expenses are taxable at the rate your father would normally pay at his income level. From the facts you present, the amount of taxes he will have to pay should be minimal. But he should definitely speak with an accountant before spending the money.
The above is general information. Laws change frequently, and across jurisdictions. You should get a personalized case evaluation from a licensed attorney. Find a local attorney to give you a free case review here , or call (888) 647-2490.
Best of luck,
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