Verdicts & Settlements
Getting injured in an accident is hard enough without worrying about the IRS coming after you. Hiring a personal injury lawyer who understands the law can help you.
You have just found out that you are getting settlement money from an insurance claim that you made. You are excited because you can finally pay off a few of the bills you acquired when trying to recover from your injuries. As you pay those bills, another worry sets in. You wonder if you are to be taxed on the money that you have been awarded.
Both the state of California and the Internal Revenue Service will impose taxes on personal injury settlements in some cases. There are a few facts you should know when you plan your budget after getting an insurance settlement.
What You Will Need to Pay Taxes On
The type of compensation you have received for your injuries will often determine whether or not you will pay taxes on them.
Punitive Damages
Punitive damages are imposed on a defendant in a court case specifically as punishment for their actions. The court imposes them in situations where a defendant may have acted in an especially irresponsible way.
If a person receives punitive damages, those damages will be taxed by the Internal Revenue Service. It will be considered “other income.”
Compensation for Lost Wages
You pay federal taxes on your income, and you will also pay taxes on money received for lost wages. You are likely to have to pay California state tax as well in this case....
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