The majority of personal injury cases in California and across the country settle before or during the trial process. In fact, only a small percentage of personal injury cases actually end up going through to a verdict. Once you have accepted a defense attorney’s settlement offer, then the case is officially settled. You may have questions, however, about how to get back to your life and how Uncle Sam may view your receipt of a personal injury settlement. You probably have calculated how the funds from your personal injury settlement may be used to support your future injury-related care, and it’s smart to take a long-range approach to this.
As a general rule, proceeds received from personal injury claims in California and beyond are not taxable under state or federal laws. This does not matter whether the funds are received as a result of a verdict or as a result of settling the case. Neither your state or the federal government can tax you on verdict proceeds or settlements in the majority of personal injury claims.
First of all, federal tax law excludes damages associated with physical sickness or personal physical injuries from a taxpayer’s gross income. This means that the majority of personal injury damages associated with compensating a claimant for things like medical bills, lost wages, emotional distress, loss of consortium, attorney fees, and pain and suffering are not taxable as long as they are associated with a personal injury or physical sickness. For more complicated questions, it is strongly recommended that you consult with an accountant about tax details, but you may also wish to speak with a financial planner in the process of accepting a personal injury settlement.