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Is My Personal Injury Settlement Subject to Taxes?

Tax implications of personal injury settlements

It can take several months or even years to agree upon a fair personal injury settlement. Once you receive your settlement, you may wonder whether you'll have to pay state or federal taxes. While the majority of your settlement will most likely not be taxed, some portions of your settlement might be.

Do I Have to Pay Taxes On My Personal Injury Settlement in California?

Some portions of a personal injury settlement may be tax-free, while other parts may be subject to taxation.

A settlement can result in economic and non-economic damages, as well as punitive damages. Economic damages can include past and future medical costs, property damage, and lost wages. Non-economic damages can include pain and suffering, loss of quality of life, emotional distress, and loss of consortium, as well as other damages.

Typically, economic and non-economic damages cannot be taxed.

Physical Injury Damages

If you obtain a settlement for physical injuries that were sustained as the result of another person's negligence, the settlement is not considered taxable income. This includes settlements for lost wages, medical expenses, and other related damages.

Emotional Distress Damages

In California, damages for emotional distress are also not taxable as long as the damages are related to a physical injury that was sustained in the same accident. This means if you receive a settlement for physical and emotional distress, the settlement may still be considered nontaxable.

Punitive Damages

Punitive damages are rarely awarded. These damages are meant to punish the negligent party for especially horrific and appalling behavior and are taxable under state law.

Interest Income

Any interest earned on a settlement is also taxable as interest income, whether the settlement money is placed in high-yield savings accounts or is invested.

What Settlements Are Taxable in California?

Personal injury settlements are usually not taxable in California. However, some types of settlements can be taxed, such as:

  • Unlawful discrimination
  • Punitive damages
  • Defamation
  • Property damage
  • Lost wages
  • Breach of contract

When you hire a personal injury lawyer, they can review the settlement agreement with you to determine if any portion of your settlement is taxable. With this in mind, your personal injury attorney may be able to negotiate the settlement's terms to minimize tax liability.

What Damages Am I Entitled to After a Personal Injury Accident?

The damages you're entitled to after a personal injury accident can heavily depend on the circumstances surrounding the accident, your prognosis, age, career, whether you're able to return to work and many other variables.

Your personal injury lawyer will investigate your accident to identify what types of damages you're entitled to and the value of those damages.

In some cases, an accident victim may be entitled to the following types of economic and non-economic damages:

  • Pain and suffering
  • Past and future medical expenses
  • Lost wages
  • Loss of earning capacity
  • Loss of quality of life
  • Loss of consortium
  • Loss of enjoyment of life
  • Permanent disability
  • Scarring and disfigurement

And more.

Contact Us Today

If you've been injured in an accident, don't wait to get help. Contact us today to schedule a free consultation with one of our experienced accident attorneys. We will listen to your story, answer all of your questions, and provide you with the legal guidance and support you need to recover fair compensation for your injuries.


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Brett Sachs

Brett S. Sachs graduated from Michigan State University College of Law with Cum Laude Honors. While attending Michigan State, Brett was awarded for his service in the Michigan State University College of Law Civil Rights Clinic, where he represented prisoners of the Michigan Department of Corrections from injustices brought upon them. Learn more.

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