Are Auto Accident Settlements Taxable in California?

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Auto accident victims often wonder whether the settlement they receive counts as taxable income. In general, compensation for medical bills and property damage is tax-exempt, while funds recouped for lost wages are still taxable. Call an attorney to learn more.

California auto accident victims have the right to pursue compensation that goes towards costs associated with the injury, such as medical bills, lost wages, and more. If you’ve successfully obtained a settlement after a car accident in Riverside County, you may wonder whether the payment will count as taxable income. The answer depends on several factors, so let’s take a closer look at when accident victims may be required to pay taxes on insurance settlements in California.

Defining Taxable Income

In general, the Internal Revenue Service (IRS) has the right to collect taxes on incomes, regardless of the source. The purpose of an insurance payout is to repair damages to your property and your body, so many insurance settlements do not count as taxable income. However, some aspects of the insurance settlement may be considered taxable—such as lost wages—as the money you would have earned were it not for the accident would be taxable.

Compensation for Medical Bills is Usually Tax-Exempt

According to the IRS, an insurance settlement for physical injuries or physical sickness caused by an auto accident is non-taxable. You are not required to include the settlement amount in your income. However, if you claimed the medical expenses on your tax return to receive a tax benefit, you could be taxed on the settlement you receive for these medical expenses. Additionally, any compensation you receive for pain and suffering resulting from the accident is non-taxable, as long as the emotional distress or mental anguish stems directly from the auto accident. If not, you may owe taxes on some or all of the amount you receive.

How a Temecula Auto Accident Lawyer Can Help

Navigating the aftermath of a Southern California car accident can be overwhelming. As you focus on your physical recovery, you must also cope with lost wages, unanticipated medical costs, and insurance carriers that may attempt to deny you the compensation you deserve. Ensure you maximize your chances of securing a fair settlement by enlisting the guidance of a trusted and experienced auto accident lawyer. Your attorney will answer your questions and address your concerns at each step of the process, working hard to secure you the best possible outcome.


For more information about how to recover compensation following an auto accident in the Temecula or Murrieta area, call Hales & Associates, A Professional Law Corporation today at (951) 489-3320.

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