Personal injury cases in California can range in severity depending on the nature of the accident that took place. Certain cases, such as car accidents or workplace injuries, can result in a substantial settlement for the victim to ensure that they can receive the necessary medical care and attention for the physical damage that they suffered. However, one of the most common questions that victims often ask is whether or not they are required to pay taxes on the income that they received from their settlement.
The state of California has a specific set of rules that govern personal injury settlements and how taxes are applied. If you are in the process of researching the different aspects of settlements and the way that taxes affect them, one of the best decisions you can make is to work with an experienced personal injury lawyer who can provide answers to your questions. Remaining informed on the tax-specific areas of your personal injury settlement can help you avoid any unwanted financial surprises.
What is a Personal Injury Settlement?
There are many different varieties of personal injury cases, and the details of each accident are important in how the settlement value of these cases is determined. For a majority of personal injury cases in California, a settlement is reached between the defendant and the plaintiff and the case never reaches a jury decision.
Insurance adjusters on both sides of the case will work with legal representatives for the plaintiff and the defendant to reach a decision on what they believe the settlement award should be. Both sides determine their own specifications for what they believe to be a fair and adequate amount that appropriately reflects the details of the incident that led to the case. After this time, an agreement is reached and both parties must sign a document called a settlement agreement.
What Factors Affect Settlement Value in California Personal Injury Cases?
Much like any other legal case, there are certain factors that need to be examined to determine an appropriate settlement value for a personal injury case in California. Various aspects of the injuries that the victim suffered, as well other damages, are considered before a settlement value is calculated. Some factors that can affect the amount awarded to the victim include:
- Plaintiff’s Losses: The extent of the injuries that the victim suffered, as well as factors such as medical expenses or pain and suffering. Certain cases may involve punitive damages being paid as a punishment for negligent behavior by the defendant.
- Defendant’s Assets: The amount of income, or lack thereof, that the defendant makes can affect how much is awarded to the plaintiff. In some cases, the court can choose to garnish their wages or sell their assets to pay.
- Defendant’s Liability: The liability placed on the defendant based on the evidence provided by the plaintiff and their legal representative. Providing indisputable proof of the defendant’s liability is an important element in obtaining a settlement.
If you are unsure of whether your personal injury case will be affected by any of these factors, a qualified California lawyer can help you navigate the complexities of settlement guidelines and how they may affect your recent personal injury case.
California State Tax and Personal Injury Settlements
Luckily for plaintiffs in California personal injury cases, the majority of settlements are tax-free. However, according to the IRS, there are several different circumstances in which you may be required to file taxes for different types of settlements, including:
- Medical expenses: You may be required to pay taxes if you paid for any medical costs for more than one year, or if you added an itemized medical deduction to your taxes, you may be required to pay “pro-rata” taxes on the medical expenses listed as deductions.
- Your medical settlement is tax-free if you did not previously take an itemized deduction for associated medical costs.
- Non-economic damages: Any damages received for a reason not related to a physical injury or physical sickness may be subject to state tax.
- Lost wages: Any awards for lost wages require you to pay tax since you would have needed to pay Medicare and Social Security taxes on them if you were capable of working.
- Property damages: You are required to adjust the basis in your property according to the amount received in your settlement if your property was damaged during the accident and, if the settlement is more than the adjusted basis of the property, you will be required to pay taxes on the excess.
- Punitive damages and interest: You are required to pay taxes on settlements that are received for punitive damages. These are taxed as “Other Income,” and it includes any interest that has accrued on those damages.
While the process of understanding California state tax in association with your personal injury settlement may be complex, it is important to know whether or not you will be asked to pay any additional fees when tax season begins. If you are still unsure of whether you will be asked to pay any additional taxes on your California personal injury settlement, the trusted lawyers at Younglove Law Group can help you find answers to all of your questions.
Dedicated Personal Injury Lawyers in California
Although facing the aftermath of a personal injury case can be challenging, it is important to find a reliable legal professional who can provide you with the legal counsel you need to ensure that you can move on after your settlement. The qualified California lawyers at Younglove Law Group are experienced in various personal injury cases, and they can help you find answers to all of your relevant legal inquiries.
When you need help after a personal injury case, call the team at Younglove Law Group at (949) 691-3660 or reach out to us online to set up a consultation with one of our dedicated personal injury lawyers in California.