When you are the victim of an accident, your tax form is not the first thing you think of. However, the subject deserves to be examined, because ignorance of it can add disappointment to an already difficult situation.
Domestic, road, accidental, caused by a third party… an accident has its share of consequences for the victim. If the physical and psychological consequences are not to be neglected, it is the financial consequences that we will study here.
Income tax: complete 2024 guide to tax filing
Labor income
Firstly, when the victim can no longer work, they need replacement income to finance these daily expenses. Most often, it is Social Security that comes into play. It grants daily allowances. As their name suggests, these benefits are paid for each day of work stoppage, but not necessarily on a day-to-day basis. In practice, it is often a monthly transfer that is proposed.
These daily allowances are taxable on income, in full and from the first euro. In fact, they replace the income that the victim was unable to generate through his work, due to the accident. They are therefore taxed in place of usual income. Your social security fund pre-fills the amounts paid on the income declaration. As with any income, you must still check that the amount is declared and correct.
Taxes: here is the list of your income and benefits that escape declaration
Exceptions exist. In the event of a work accident, daily compensation is only taxable at 50% of its amount. They are completely exempt for people affected by an illness requiring prolonged and particularly expensive treatment. In principle, the amount pre-filled by Social Security takes these exceptions into account if you are concerned.
Often, Social Security benefits do not completely compensate for the victim’s loss of income, particularly certain bonuses. When a private insurer steps in to complete the plan, it generally pays a lump sum, which is exempt.
Compensation for damage
Beyond the replacement income, essential to meet current expenses despite the accident, the victim is likely to receive sums to compensate for certain damages.
This may involve compensating for loss of autonomy, aesthetic damage, the inability to practice a sport or art, or more simply for the pain suffered, what insurers call endured suffering.
For the taxation of these sums, the principle is simple: there is exemption for sums received in the form of capital. On the other hand, amounts received in the form of periodic payments are taxable. They are then assimilated to life annuities.
An important subtlety to master before accepting the compensation offered to you. It is in your interest, from a tax perspective, to receive the amount in the form of capital. If you take out an annuity, you will be taxed on the amount for as long as you receive it, that is to say for your entire life in the case of a life annuity.
An exception is provided for victims of bodily injury whose condition requires the use of a third person to carry out ordinary acts of life. In practice, these are people recognized as permanently totally incapacitated following their accident, and therefore severely disabled. In this situation, if it is agreed that your compensation is paid in the form of an annuity, it escapes tax.