Is the money from an auto insurance settlement taxable?

Q: Last year I received a settlement from my auto insurance company after I was involved in a hit-and-run accident. Is this money taxable? --Dave, Auburn

The following answer was provided by Barry Beck, CPA, Barry D Beck, CPA, PFS, DABFA.

A: As discussed in prior answers, the proceeds may be taxable. Depending on the terms of the demand letter, pleadings there is a high likelihood that the IRS will view the settlement to be taxable.

Assuming that the entire process was paid to your attorney, the attorney deposited the funds into in his/her escrow account and disbursed the proceeds to you, your lawyer has a responsibility to notify you in IRS form 1099-MISC of the taxable portion. However failure to receive the document does NOT relieve you of reporting the proper amount of income on your return.

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: If the money is for damages to your property (your car), then it should not be taxable. If the money is for physical injuries to you, it will not be taxable. If the money is not for damage to yourself or your property, it will be taxable.