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Is My Car Accident Settlement Taxable in California?

Torem & Associates

When you are injured in a traffic accident, you can hold the negligent driver or party responsible for the accident liable for your damages. In other words, if you did not cause the collision, you might be entitled to receive money from the party who did cause the crash. However, that money could be taxable as income in some cases.

Compensation for Pain and Suffering

The money you receive as compensation for the pain and suffering from your physical injury or illnesses is not considered taxable income by the Internal Revenue Service or the California Department of Revenue. This also includes the amount you receive for the emotional distress or mental anguish you suffer because of the physical injuries or illnesses. However, if your claim is for emotional distress or mental anguish that did not result from a personal physical injury or illness, you may owe income tax on all or a portion of the settlement.

Property Damage

The amount of money you receive to repair your vehicle should be non-taxable. The same applies when your vehicle is totaled, and you are paid the market value for your claim. There could be a tax issue if you receive more than the adjusted basis of the vehicles.

Medical Bills

In many cases, the compensation you receive for medical expenses is not taxed. However, if you claimed those expenses on your tax return for a tax benefit, you might be taxed on compensation for those medical expenses.

Loss of Income

When you lose income because of a car accident, you are entitled to recover compensation for that loss. Most of the time, the amount paid for lost wages is taxable because your wages would have been taxed had you not been injured in an accident.

Punitive Damages and Interest

In some cases, the settlement may include an amount for interest or punitive damages. These damages are not typical in a car accident case, but there are a few cases that qualify for these types of damages. If punitive damages or interest is included in your settlement, these amounts will be taxable as income.

For more information about taxes owed on car accident settlements, you can read the IRS publication or contact our office.

Fighting for Maximum Compensation

Being injured in a traffic accident is a traumatic event regardless of the severity of your injuries. As you continue through your recovery, you incur expenses and losses. If another driver caused your accident, you can file a claim against that driver. However, you must prove that the driver caused the accident and you suffered injuries and damages because of the crash. Failing to prove all elements required for liability results in your claim being denied.

Therefore, you need an experienced attorney on your side who understands how to investigate an accident to obtain the evidence you need to prove your case. Maximizing your chance of recovery and your chance of recovering full compensation is our goal. We fight for you to receive a fair and just amount for your car accident claim.

Fresno and Central California Valley Car Accident Attorneys

If an insurance company is offering you a settlement for your traffic accident, do not accept that settlement until you consult with our attorneys. Let us review your case to determine if the offer is fair. Contact Torem & Associates by telephone at (888) 500-5000 or online by using the contact form on our website.


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