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 Tenina Law – Personal Injury Attorney to represent them, especially when a lot is at stake.
Tenina Law has represented injured people in Pasadena and the surrounding communities for more than 20 years. If you’ve been hurt, let our proven car accident lawyer fight for maximum compensation for you.
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 Tenina Law can help structure your payout to your best tax advantage.
This article was written by Alla Tenina. Alla is a top San Fernando Valley bankruptcy lawyer, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
