When you are involved in a car accident your expenses and bills can start to add up into an unmanageable pile of debt. If another person was responsible for the accident you can file a claim or lawsuit to pursue compensation to cover your costs. When you receive a settlement after a car accident you may wonder if that money is taxable or tax-free. A San Mateo County, California car accident lawyer can offer you legal advice and representation during your claim or suit. Schedule your free case evaluation today.
What Compensation Can Be Awarded in a Settlement?
Depending on the extent of your damages and injuries your expenses could be significant. If another party was liable for the accident you can pursue compensation through them and their insurance for the following.
Economic damages
- Medical expenses like ambulance rides, hospital stays, surgery, medication, treatment, physical therapy, rehabilitation, etc.
- Costs to repair property damage to your vehicle or other items
- Lost wages, commissions, bonuses, etc. due to time taken off of work as a result of your injuries
Non-economic damages
- Physical pain
- Discomfort
- Emotional distress
- Development of mental disorders including sleep issues, depression, anxiety, and PTSD
- Loss of enjoyment of life
- Disability
- Loss of consortium
Punitive damages
- Additional monetary benefits awarded as a way to further penalize the liable party and discourage them and others from engaging in the same negligent, reckless, or malicious behavior
Will My Accident Settlement Be Considered Taxable?
Most personal injury settlements in California are free from taxation. Economic and non-economic damages are considered compensatory and designed to reimburse the victim for expenses incurred due to their accident. Both the IRS and California state law do not consider compensation for physical injuries as income so they are exempt from income taxes. However, some aspects of the settlement agreement may be taxed.
Punitive damages are subject to tax in California. Because these damages are not meant to compensate the victim, only to punish the defendant, these additional funds are considered taxable. This rule does not affect many people as punitive damages are rarely awarded during personal injury cases.
Additionally, some people receive interest on their accident settlement. With the help of their attorney, the victim can request pre-judgment interest, meaning that they will earn interest on the awarded sum during the waiting period. Additional compensation from interest is taxed.
Contact a Personal Injury Attorney Today
The legal process of filing a claim or lawsuit against a negligent party after a car accident can be intricate and complex. It is important to work with a skilled lawyer who can help you navigate the proper procedures and ensure your rights are protected. Reach out to the Law Offices of Allister R. Liao to obtain legal advice and experienced representation today.
