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Are Car Accident Settlements Taxable in New Jersey?

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Kantrowitz, Goldhamer, Graifman, Perlmutter & Carballo, P.C.

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Written/Reviewed By:

Barry S. Kantrowitz, Esq.

Last Updated: Jun 10, 2026

Read Time: 3 mins

With a few exceptions, the money damages you recover when you settle a New Jersey car accident lawsuit will not be taxable either by the federal government or the state. These damages receive tax-favorable treatment because they are intended to compensate a car accident victim for losses and injuries. Therefore, they are not considered to be income or investment gains.

At Kantrowitz, Goldhamer, Graifman, Perlmutter & Carballo, P.C., we help our clients recover the largest available damages awards. We use our knowledge and experience in personal injury and car accident lawsuits to structure settlements and jury awards so that no part of a client’s recovery is subject to taxation.

Car accident settlements compensate a victim for losses

Indivduals frequently suffer significant unanticipated losses as a result of a car accident, including:

Current and future medical expenses
Wage losses when the victim is unable to work while recovering from injuries
Pain and suffering that injuries and property damage impose on the car accident victim
Expenses associated with occupational therapy and rehabilitation
Impairment of relationships with family and friends

A car accident lawyer will break down all of these costs and expenses. Your lawyer will also verify that these expenses are thoroughly described and defined in the final settlement agreement that the victim signs with the parties liable to reimburse them. The damages award that makes the victim whole will not be subject to income or capital gains tax withholding

Certain types of damages that are not reimbursement of a victim’s losses may be taxable

In a small number of car accident lawsuits, the defendant’s conduct might have been so egregious as to warrant an award of punitive damages. These are not reimbursements of actual losses but instead, penalize the liable party’s gross negligence or willful misconduct. Punitive damages awards are taxable because they are not compensation for an injured party’s losses.

Further, if an accident settlement is delayed and accrues interest, it will be deemed to be taxable income. Last, if a settlement award is characterized as compensation for emotional injuries and not the victim’s physical injuries, the settlement amount will also be subject to withholding taxes.

An experienced car accident lawyer will verify that your settlement payment is not subject to taxation

Car accident settlements are generally documented with settlement agreements that describe the reasons and purpose of the amount. A car accident victim can avoid unforeseen tax complications by retaining a car accident lawyer. They will review the final agreement and negotiate any clarifications that may be required to prevent federal or state tax authorities from taking a piece of the full settlement award.

Call Kantrowitz, Goldhamer, Graifman, Perlmutter & Carballo, P.C. to confirm that your car accident settlement is not taxable

To improve your chances of recovering the largest, tax-free settlement award in Bergen County or anywhere else in New Jersey, contact us for a private and confidential consultation. We will evaluate your case, explain all of your options, and negotiate your settlement to allow you to retain the full amount of your damages with no tax liabilities.

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   LWelsh 
 1 days ago
 
 
 Trustindex verifies that the original source of the review is Google. Clever and efficient.
  
 
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   Kenny Perlow 
 22 days ago
 
 
 Trustindex verifies that the original source of the review is Google. KGG Law, and Barry Kantrowitz in particular, set the bar high for what a thorough, practical, strategic, compassionate and smart lawyer can be. Everything about Barry's advice and representation was exemplary and the stress mitigation that resulted was invaluable. On top of that, the ultimate result Barry achieved was beyond what was reasonable to expect and we are forever grateful. Often, people say that you hire a lawyer to prevent a problem. Sometimes, unfortunately, you need an attorney to solve a problem and I could not recommend Barry and his firm any more highly in that regard.
  
 
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   Aliza Ali 
 86 days ago
 
 
 Trustindex verifies that the original source of the review is Google. My dad had a great experience with this law firm. From the very beginning, the team was professional, knowledgeable, and always willing to answer our questions. They kept us informed throughout the entire process and made what could have been a very stressful situation much easier to handle. We truly appreciated their dedication, honesty, and hard work. Thanks to their support, my dad felt confident every step of the way. We are very grateful for everything they did and would highly recommend this firm to anyone looking for reliable legal representation.
  
 
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   Jana Montero 
 89 days ago
 
 
 Trustindex verifies that the original source of the review is Google. I had a wonderful experience working with Sam Smith. He was very responsive, thorough, and easy to work with from start to finish. He walked me through everything clearly and made what started as a very stressful situation for me into something completely manageable. I would not hesitate to recommend him and the firm!
  
 
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   Mike Sakmann 
 95 days ago
 
 
 Trustindex verifies that the original source of the review is Google. I sought legal advice regarding an employment matter and had an excellent experience working with Sam Smith, Esq. at KGG Law. Sam was thorough, attentive, and took the time to listen carefully to my concerns before providing clear, thoughtful guidance. I appreciated the professionalism and care shown throughout the process, and I would confidently recommend KGG Law to anyone in need of legal assistance.
  
 
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   Liz Hecker 
 101 days ago
 
 
 Trustindex verifies that the original source of the review is Google. I can't say enough about this firm. They manage to comfort you during the whole legal process while staying professional and doing what is right. I would recommend them to anyone and also hire them again if I need legal help.
  
 
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   Brandy Miller 
 124 days ago
 
 
 Trustindex verifies that the original source of the review is Google. Kate is the best. She helped me very quickly, and was very attentive with all of my needs. So thankful for her
  
 
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   Mike Greenspan 
 137 days ago
 
 
 Trustindex verifies that the original source of the review is Google. Kate Carballo is a dedicated, passionate, and creative attorney whom I had the pleasure to lecture with at a state trial lawyer's conference. Kate's lecture demonstrated how she uses her innovative and "out-of-the-box thinking" to achieve outstanding results for her injured clients. That Kate is certified by the Supreme Court of New Jersey as a civil trial attorney is a testament to her skills, experience and commitment to excellence.
  
 
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   Jonathan Sampson 
 144 days ago
 
 
 Trustindex verifies that the original source of the review is Google. Was referred to KGG law by a friend and could not have asked for better legal representation. They walked me through every step of the process after my accident and began every call with “ how are you feeling” which was just one example of how much they care about their clients. They handled my case very efficiently, professionally and courteously. My attorney Kate Carballo was a rock star! So clearly experienced, she consistently made me feel at ease with the process. Highly recommend
  
 
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   Vinnie Kung 
 147 days ago
 
 
 Trustindex verifies that the original source of the review is Google. We had a great experience with the team at KGG Law. While it was a traumatic time for our family, they made it very easy for us and explained all of our options. They even performed due diligence to make sure that after our settlement, there would be no further issues which I think is even more important than the settlement itself. Thank you!

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Are Car Accident Settlements Taxable in New Jersey?

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