The majority of dog bite settlements in California are tax-free because of regulations enacted by the IRS. The IRS views your reward as compensation you’ve been given to be made “whole” after suffering an accident, so there is no tax on any settlement reward. However, there are a few exceptions to these regulations.
Exceptions to Tax-Free Settlements
Regarding taxation and personal injury cases, such as a dog bite accident case, there are a couple of exceptions where your settlement can be taxed. If you’re rewarded punitive damages, that portion of your recovery can be taxed. Punitive damages are rewarded to accident victims who were harmed intentionally or due to an extreme case of recklessness. Punitive damages are rare in a dog bite accident case, but they can be rewarded in certain situations.
Another exception to receiving a tax-free settlement is if you receive interest on your award. Interest can accrue while a settlement goes unpaid. Generally, an unpaid principal balance collects 10% or 7% if the debtor owes $200,000 or more or if they’re a government entity, according to the Judicial Branch of California.
Do You Have to Pay Taxes for Past and Future Medical Expenses for a Dog Bite Settlement?
Under 26 U.S. Code 104 (a)(2), the compensation you receive for your medical expenses for your physical injuries does not count as your gross income and is not taxable by the IRS or the State of California. Damages for your past and future medical expenses are not considered taxable income as they are considered to be monetary reimbursements for the money you were forced to spend to receive treatment for your injuries.
However, when filing your taxes, if you claimed itemized deductions for some of your medical expenses while your lawsuit was pending, you will have to include those deduction amounts and report them to the IRS. This rule is stated in the subsection of 26 U.S. Code 104(a), which states that any medical expenses you claimed as itemized deductions during the year you received your settlement or reward cannot be later exempt from your gross income.
If you only received the standardized deduction and did not itemize your medical expenses, then none of your medical expenses will be taxable.
Are Settlements and Judgements Two Different Rewards?
No, out-of-court settlements and judgments handed down by a judge or jury are considered the same thing and are subject to the same tax rules and regulations by the IRS. A legal settlement is an agreement between two parties to resolve a legal claim. A settlement often includes:
- The amount of compensation and any payment plan involved
- A full liability release in which the plaintiff agrees to drop any claims against the defendant
- A confidentiality clause that prohibits either side from talking about the case in public
A judgment, on the other hand, is known as a verdict made by a judge or a jury in a civil court. Both sides are required to present their evidence and arguments in court. Once a judgment is made, the liable party will have a set amount of time to pay the plaintiff. If the payment is not made, then the plaintiff can file a judgment lien on the liable party’s property and assets until the debt is paid.
Contact a Dog Bite Lawyer in California
After suffering a dog bite, it is important to partner with a trusted personal injury law firm that takes the time to understand both the factual and legal sides of your case. Personal injury cases like dog bites can become complex quickly if not handled quickly. So, whether you’ve lost confidence in your current representation, or are seeking legal advice for the first time, we recommend contacting the dog bite attorneys at Maison Law today for a free consultation and case evaluation. There are no upfront fees for our services and you will not be charged unless we win your case.
