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Are Personal Injury Settlements Taxable in California?

No one wants to go through a personal injury claim. These can take some time and you are dealing with a lot of problems along the way, such as medical bills, costs to fix what was broken, time off work and more. The extent of the pain and suffering will depend on the case. But if you do win a personal injury settlement in California, you may wonder whether this is taxable or not?

Moseley Collins, an experienced personal injury lawyer in Sacramento CA, explains that personal injury settlements are not taxable in California. This means that if you do win a settlement for pain and suffering, physical injuries, emotional distress, or even punitive damages, you will not have to pay state or federal taxes on them. This allows more of the money to stay in your pocket, rather than getting paid out to the state or the federal government. You may still need to pay your lawyer and any court fees depending on the final settlement.

The money that you get from a personal injury settlement is meant to help you cover your bills, repair damage, and even support you if you are not going back to work. Having them be tax free is key to helping you have more money to do all of that. Let’s take a closer look at how personal injury settlements are handled in California.

Will I Have to Pay Taxes on My Personal Injury Settlement in California?

Working with your lawyer against an insurance company or someone else to get a personal injury settlement is not an easy thing to do. It takes a lot of time and effort and you have to be ready for the long haul. But at some point, you get the settlement and can take the money home with you. But are you going to be taxed on it and is this something that you need to consider when getting the settlement?

In California, and most other states, you will not be charged taxes on the money that you make in a personal injury settlement. The amount that you are awarded is yours to keep and you do not need to share it with the government. You usually do not need to pay taxes on it at the state or the federal level at all. This allows you to have more money in your pocket after you had an injury.

Am I Taxed on a Medical Lawsuit Settlement?

A personal injury settlement and a medical lawsuit settlement may go through a different process from one another, but you will find that California is going to see them in a similar manner. You will usually not get taxed on the medical lawsuit settlement either, unless it is given for lost wages or it is reimbursed medical expenses. This can help you out if you are not working after the accident or if you. need help with a lot of expenses along the way. Working with your lawyer to get the settlement and a financial advisor to help out afterwards can ensure that you only pay the taxes you need.

What are the Exceptions to Personal Injury Settlements Being Taxed in California?

As with anything, there are some exceptions to the rules when it comes to taxes and your personal injury settlements. Most of them are not going to tax you on it at all, but there are a few exceptions and it can be based on the situation that happens. Some of these include:

  • Lost wages: If your settlement gives you some compensation for lost wages due to the injury, then you may find that this part of it is taxable income and you will need to pay on that. Talk to your tax professional to see.
  • Reimbursed medical expenses: You may have to pay taxes on some of your reimbursed medical expenses, if you deducted them on your tax return. You can’t double-dip and get the government and the insurance company to pay for the same bill twice.
  • Excessive punitive damages: While the punitive damages are often not taxed, if they are considered unreasonable and excessive, then they could be taxed.

You may want to work with a financial advisor or a tax professional to discuss how this is going to affect you and whether you will need to worry about paying taxes once you get your settlement.

How to Get More Out of Your Personal Injury Settlement

You only get one chance to have a personal injury settlement go your way and trying to manage it all on your own can take some time and may not give you the results that you want. Looking into a personal injury lawyer may be the smart decision for all your needs. They can answer your questions, work with the insurance companies, and ensure that you get a fair personal injury settlement no matter the situation.

Jamesen Witte

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Jamesen Witte

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