Is My Car Accident Settlement Taxable?

Are Settlements from Personal Injuries Taxable in California? - Pius Joseph

After you’ve been seriously injured in a car accident in Pasadena, CA, negotiating a full and fair settlement with an insurance company is just the beginning. It’s also important to prepare yourself for the tax implications that may cut into your net payout.

Your personal injury lawyer should take your tax liability into consideration and guide you towards the best possible outcome in your case. That’s why car accident victims in Pasadena choose the Law Offices of Pius Joseph to represent them, especially when a lot is at stake.

Attorney Pius Joseph has represented injured people in Pasadena and the surrounding communities for more than 30 years. If you’ve been hurt, let our proven car accident lawyer fight for maximum compensation for you.

Call or contact us for a free consultation.

Is a Car Accident Settlement Considered Taxable Income in California?

In most instances, personal injury settlements and cash awards are not taxed in California. In fact, California does not collect any additional taxes beyond those specified at the federal level by the Internal Revenue Service (IRS).

You’ll be glad to know state and federal laws limit how much the government can tax your personal injury settlement. There are exceptions, however, and they can be tricky. It’s best to check with a lawyer who understands the fine print so that your settlement is structured appropriately.

What Can and Cannot be Taxed After a Car Accident Settlement?

Each case is different, so it’s best to ask your lawyer what can be taxed in order to avoid penalties and fees from the IRS. Be aware that your prior years’ taxes may be impacted by your settlement. In general, the following damages may be taxed:

  • Loss of income
  • Punitive damages
  • Interest expense incurred
  • Medical expenses (in certain cases)
  • Property damages (e.g., expenses related to repairing your car)
  • As part of the negotiation, if you keep your settlement confidential, you may be required to pay taxes on it.
  • The following damages generally are not taxed:
  • Pain and suffering
  • Emotional or mental anguish if related to your physical injury or illness
  • Medical expenses (in certain cases)

Rest assured that the Law Offices of Pius Joseph can help structure your payout to your best tax advantage.

Do I Need to Report My Settlement to the IRS?

In general, you will need to report to the IRS only the portions of the settlement that appear to be taxable. Discuss this with your car accident lawyer for definitive answers. It may depend on the specifics of your case. You can also refer to the most current IRS guidance for clarification.

Contact a Car Accident Injury Lawyer in Pasadena If You’ve Been Injured

Choosing the right injury lawyer to represent you following a car accident is one of the most important decisions you will ever make. You’ve got only one opportunity to get it right. Your physical, emotional and economic health hang in the balance.

For more than three decades, the Law Offices of Pius Joseph has successfully represented car accident victims just like you. We understand the magnitude of your losses and will fight for the compensation you deserve.

Getting started is easy. Contact the Law Offices of Pius Joseph now for a free consultation. There’s no obligation, so you have nothing to lose.