<p>My mom and I were in a car accident about a year and a half ago (rear-ended) and went to the chiropractor for a while, sending charges to the insurance company. I ended my sessions fairly soon after the accident, settled the claim, and received about $3k early this year as reimbursement for the medical costs. My mother continued to see the chiropractor longer, and just recently settled the claim. She received her check today: $17k. It covers medical, mileage, and wage loss. Now I'm wondering if this is taxable and if it will affect my EFC next year. My mom said that she thinks it won't be taxed because it's medical, but then she said she wasn't sure because it also includes wage loss.</p>
<p>I really don't want my financial aid to change (unless it helps me more). I already had to deal with a large sum of money that my dad took out from retirement last year (I know that was taxable and included in income, so it probably left me out of some grant money). Will this insurance settlement ruin my EFC again?</p>
<p>I don’t believe insurance settlements are considered taxable income. HOWEVER if that money is sitting in your bank account when you file the FAFSA, it will be considered an asset. If your mom has little else in assets, that $17K would fall under the amount of protected assets. If his money ads to another significant amount of accumulated assets, it could bump up your EFC.</p>
<p>We may have a similar problem. We had a major casualty loss to our home earlier this year. After months of hassling with the insurance company, we may now get a check in order to have our home’s considerable damage repaired. All of it will be necessary to make our home habitable.</p>
<p>I am concerned that given the slow nature of construction companies that if the money is still sitting in our checking account in February, that it will be reportable on FAFSA, when it’s really just a question of timing. </p>
<p>Money from insurance companies to replace losses is not income. It shouldn’t be considered assets either. If the insurance company paid the contractor directly, it wouldn’t be considered an asset to us.</p>
<p>All forms of income are taxable unless specifically excluded by the Internal Revenue Code. IRC Section 104 (“Compensation for Injuries or Sickness”) has some pertinent information. My gut feel is that the portion of compensation which is for lost wages is likely taxable. Probably best to consult your tax advisor.</p>
<p>Here’s some info from IRS Publication 525 (Taxable and Nontaxable Income)</p>
<p>Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.</p>
<p>Interest on any award.</p>
<p>Compensation for lost wages or lost profits in most cases.</p>
<p>Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.</p>
<p>Amounts received in settlement of pension rights (if you did not contribute to the plan).</p>
<p>Damages for:</p>
<p>Patent or copyright infringement,</p>
<p>Breach of contract, or</p>
<p>Interference with business operations.</p>
<p>Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.</p>
<p>Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.</p>
<p>Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).</p>