Posted on Monday, August 21st, 2017 at 6:45 am    

When you are injured in an accident, you might be entitled to receive compensation for your injuries and damages. For example, if a negligent driver causes a crash, or you slip and fall at the store, you may recover money for your medical bills, lost wages, and other damages. In many cases, your settlement will not be taxed; however, there are some types of compensation that can be taxed by the Internal Revenue Service or the State of California.

Medical Bills and Expenses

Medical expenses can be a large portion of a personal injury settlement. When you are reimbursed for medical expenses, that money is not taxed in most cases. However, if you claimed the medical bills on your tax return, you might be required to pay taxes on a portion of your injury settlement.

Lost Wages and Loss of Income

The portion of your settlement that is intended to reimburse you for loss of income can be taxed as income. Because your wages would have been taxed had you not had the accident, the IRS takes the position that reimbursement for lost wages is taxable. You should consult an experienced Sacramento personal injury attorney and tax professional for more information.

Physical Injuries and Physical Sickness

Personal injury settlements also include amounts for the physical pain and injury you suffer because of the accident. Compensation for physical pain and suffering are usually not taxable if the pain and suffering are the direct result of a physical injury or illness sustained in the accident.

Emotional Distress and Mental Anguish

In addition to compensation for the physical pain and suffering, you may also receive compensation for your mental anguish and emotional distress. The compensation for emotional distress and mental anguish is usually not taxable if the distress and anguish are caused by a physical injury or illness sustained in the accident. If your claim does not include a physical injury or illness, the compensation for emotional suffering and mental anguish may be considered taxable income.

Property Damages

According to the IRS, compensation for property damages is not taxable unless the amount you receive is more than the adjusted basis of your property. Amounts over the adjusted basis can be taxed as income.

Interest and Punitive Damages

Interest and punitive damages are not very common; however, some claims may qualify for these types of compensation. If so, you are required to pay taxes on this compensation because interest and punitive damages are considered income for tax purposes.

For more information, you can see the IRS publication explaining the taxability of settlements.

Call a Sacramento Personal Injury Attorney for a Free Appointment

Personal injury settlements can be complex. In some cases, the way a settlement agreement is worded can have a significant impact on whether your proceeds are taxable or non-taxable. Before you agree to accept a settlement agreement, you should consult with our Sacramento personal injury attorney to discuss your options and legal rights. We want you to receive full compensation for your losses and injuries.

Contact The Tiemann Law Firm by calling (916) 999-9000 or by visiting our website. We offer free consultations and no-obligation case evaluations, so you can get the information you need to pursue an accident claim.

Client Testimonials

Hanna Padilla Testimonial

From the very start of my case the Tiemann Law Firm was wonderful. Perter came all the way to my home to sit down and talk to me about my options. He made me and my partner feel very comfortable and promised us he would take the very best care of my case. Peter kept me informed every step of the way and was always on top of things. everything was done in a timely manor and I always felt like I was the only case he was working on because he was so fast. In the end Peter got me back way more money than I ever expected. I would recommend this law firm to everyone. I am very happy with the outcome of my case thanks to the Tiemann Law Firm! Thank you!

Star Fire Testimonial

It is hard to put into words the care and dedication that I received from the Tiemann’s. They have been here for me every step of the way and were always available when I had questions or concerns. My husband and I will be forever grateful for everything they have done for us and our family. Thank you so much for all of the hard work and time you have put into my case, we greatly appreciate it and your friendship. We highly recommend this firm and will always be thankful for everything they have done. Thank you so much again, Kim

Maye Ly Testimonial

I just saw my lawyer Jelena Tiemann on a t.v ad, which reminded me how much she helped when I was in a desperate situation. I just love her! That is why I feel a need to tell everyone. I had a situation that happened & didn’t know what to do, our where to go. I didn’t even know if she could help me or if any lawyer could. All I wanted was it to go away & was afraid most lawyers wanted to drag it out & possibly go to court. For one she was very professional but was very personable (maybe b.c she’s a lady). She didn’t make me feel embarrassed or self-conscious that I did something wrong or was the cause of the situation. She immediately said we should try our best before going to court. Let me handle some paperwork, if at the last we do go to court we have documents. She gave me all the details, pros and cons but reassured me she deals with these cases all the time. She came through and made it as painless as possible. I now have my life back.

Jennifer Birdseye Testimonial

Tiemann Law Firm helped us with an injury case for my nephew. They were very knowledgeable and we are very happy with the service they provided. The entire staff is topnotch!

Elizabeth Ochoa Testimonial

I chose Tiemann Law Firm to help me after a car accident I was involved in. Throughout the entire process, Moe made sure to keep me updated, he always responded quickly whenever  I had questions about anything. My case won thanks to this law firm and its dedication. My experience with Tiemann Law Firm was amazing! 10/10 recommended.