March 24, 2021 Posted In Car Accidents
As tax season arrives, you may be wondering if a car accident settlement you received must be claimed on your tax return. Fortunately, the majority of car accident insurance settlements are not taxable in California. However, there are a variety of factors that can impact if you will need to pay taxes on some or all of your settlement. Before you sign any documents for an insurance company or accept a settlement, consult with an experienced car accident lawyer.
Depending on the types of compensation you receive, the State of California and the federal Internal Revenue Service (IRS) may impose taxes. For example, the IRS’s Settlements – Taxability guide states that taxes may need to be paid on the following kinds of compensation:
Your car accident attorney can help you understand the specific tax repercussions of your settlement. If part or all of it is taxable, you will need to list the applicable awards on your tax return statement. Additional taxes are not imposed by the State of California in addition to the taxes from the IRS. However, only a tax specialist can give you absolute certainty as to which taxes you will have to pay on your settlement, in order to avoid penalties and fees.