Connecticut Child Injury Damages Recovery: Tax Liabilities

After your child has been involved in a very serious car accident case, you are offered a large settlement amount for your child's case and you want to know what options you might have to help spread these payments out over time and what tax advantages might exist.

In the 1970s, personal injury claimants began resolving cases through structured settlements. In the early 1980s, Congress enacted legislation that encouraged broader use of structured settlements. The key terms of a party's agreement to be paid in periodic installments must be agreed to by the injured party and the responsible party's insurance company.

The new laws enacted by Congress changed the way these funds were treated by the IRS and effectively created a tax shelter for accident victims. As long as the structured settlement, or annuity, was properly set up then all installment payments made would be received tax free (excluding monies paid for loss of income). Therefore, a structured settlement is a method of resolving an injury claim by paying settlement proceeds over time, resulting in tax free monies received by the injured party.

The annuity payments can be paid at agreed upon times which might cover expenses such as college tuition, a down payment on a house, or yearly living expenses. To maximize the amount of money being paid by and through an annuity, it is important to remember the following:

  • The more money that is used to fund the annuity, the greater the payment can be
  • The later the payments being made, the greater the payments can be
  • The longer the payment schedule extends, the greater the payment can be
  • The smaller the payments are at the beginning of the payment schedule, the greater the payment can be

It might be prudent for you to at least investigate the option of a structured settlement to see if it might be of interest to you. There are a great number of considerations to review, so make sure you go over all of these issues with a tax expert and/or your attorney.

Found out what to do and what not to do by ordering our FREE comprehensive book "The Crash Course on Personal Injury Claims in Connecticut" for FREE. Call us today at (888) 244-5480 or order it online at