The segments of your settlement meant to pay medical bills and cover future medical costs probably won’t be taxable. The money you get to cover your property damage, like a wrecked car or a personal computer, wouldn’t have to be reported.  You may have to pay taxes on the money you receive to replace the paychecks you miss while your injury prevents you from working.

In the aftermath of a personal accident settlement, it’s a great idea to file your taxes with the help of a tax professional. You should want to pay the taxes on your settlement so you don’t get penalized later and end up losing some of that support you rely on.

What Can I Skip Paying Taxes on After Winning a California Personal Injury Settlement?

The money you get to pay our hospital bills and any care you could need in the future will usually come tax-free. Lawmakers prioritize the wellbeing of personal injury victims.

You may rack up thousands of dollars in hospital invoices after being forced into a car accident on a boulevard. You may end up in the emergency room after a dog bite incident. You could wind up with medical debt after taking a slip-and-fall in a grocery store where employees forgot to put out “wet floor” signs.

It’s only right that you don’t have to pay taxes on the money you may have already spent on your medical care. It’s especially just when you are made to wait weeks or months for an unhelpful insurance company to return that money to you.

Here’s a short list of the parts of your settlement check that should be protected from tax responsibility:

Medical Bills – You shouldn’t have to pay taxes on the doctor and physical therapy bills you are reimbursed for in a settlement. This can include the support for medical equipment you require and even home renovations you might need when dealing with a permanent disability.

Pain Endured – This is a non-economic damage that you can receive substantial compensation for in a personal injury settlement. This is only fair for victims who must deal with extreme pain and pain that may continue for months or years. This support isn’t usually taxable.

Coping with Emotional Trauma – The support you are awarded for the emotional consequences of your accident. The anxiety and depression that a scary accident and a long recovery can cause for victims. The PTSD symptoms that have victims replaying the moment of an accident over and over again could be part of this compensation. This might also include money to pay for the counseling some victims may require. This award shouldn’t have to be reported to the IRS.

Support to Repair or Replace Personal Property – This is only taxed if you receive more than the value of your damaged vehicle or your damaged personal items, like a laptop.

What Do I Have to Report to the IRS After Receiving a Personal Injury Settlement?

On the other hand, the IRS will want its share of certain types of compensation after an accident.

You will probably have to report the following:

Lost income and benefits compensation – Any reimbursement you receive for the paychecks you had to forfeit while an injury kept you from work would have to be reported as income.

Punitive damages — Money you receive when the at-fault party pays punitive damages would also be taxed.  Punitive damages are rarely handed out in normal personal injury cases. They are issued as a punishment to those who cause accidents when their actions are grossly negligent. The reckless behavior is so hazardous that it’s almost intentional. This might involve someone who hurts other drivers while street racing, or a company that covered up a hazard that had a high likelihood of harming others.  Victims usually receive the penalties assessed on those at fault, and the money would be taxed.

It’s advisable to always go over your tax filings with a tax expert before sending your return off. It’s the best way to make sure you are up to date on your taxes, and you don’t end up having to use part of your injury compensation on tax penalties.

Contact a California Personal Injury Lawyer

If you suffer a serious injury in an accident, and an individual or a business was to blame, having a lawyer may make a huge difference in the outcome of your case.

A skilled Maison Law attorney can often help you earn more for your personal injury accident than you could win for yourself. Your lawyer can also help you keep track of where your settlement money comes from and what each portion is meant to compensate.

Maison Law offers a free, no-obligation case consultation with a real lawyer. Our California personal injury lawyers will sit down with you and listen to the details of what happened. They can go over your best options for getting the most for your recovery with the shortest wait. We want you to get back to your normal life without financial worries as soon as possible.

If you end up needing our help, you never have to pay anything up front. Our lawyers work under a contingency agreement. It means we don’t get paid unless we win your case for you. Then our fee comes out of the insurance settlement you are awarded.