The majority of slip-and-fall settlements are tax-free because of regulations enacted by the IRS. The IRS views your reward as compensation you’ve been given to be made “whole” after suffering an accident, so there is no tax on any settlement reward. However, there are a few exceptions to these regulations.
Exceptions to Tax-Free Settlements
If you’re rewarded punitive damages, that portion of your recovery can be taxed. Punitive damages are rewarded to accident victims who were harmed intentionally or due to an extreme case of recklessness. Punitive damages are rare in a Walmart slip-and-fall accident case, but they can be awarded in certain situations.
Another exception to receiving a tax-free settlement is if you receive interest on your award. Interest can accrue while a settlement goes unpaid. Generally, an unpaid principal balance collects 10% or 7% if the debtor owes $200,000 or more or if they’re a government entity, according to the Judicial Branch of California.
Confidentiality Clauses and Settlement Taxation
The confidentiality clause of a settlement agreement may result in unintended taxable income. The reason for this is because tax law states that a personal injury settlement is untaxable when it covers personal injury and emotional damage. This law is unenforceable if a personal injury case contains a confidentiality clause.
A confidentiality clause is a contract provision that prevents parties from sharing sensitive information with third parties without permission, also known as a non-disclosure agreement (NDA). So, if your personal injury case settles with a confidentiality clause, the IRS could say your settlement is taxable because it was for confidentiality, and not for personal injury reasons such as medical bills, lost wages, and emotional damages.
How are Injuries Calculated in a Car Accident Settlement in California?
There are several factors used to calculate a car accident settlement. Medical expenses, legal expenses, lost wages, and pain and suffering will have a significant impact on the value of your settlement, however, those factors will all be decided by the severity of your injury. When assessing the severity of injuries sustained from a car accident, they are typically placed into one of the following three tiers:
- Tier 1: This tier is for the most severe injuries. Severe injuries tend to have the largest payout. These injuries include:
- Traumatic brain injuries
- Spinal cord injuries
- Permanent disfigurement
- Wrongful death
- Tier 2: This tier is for moderate to severe injuries. These injuries typically require surgical intervention and deal with broken bones, fractures, and lacerations.
- Tier 3: This tier is for mild to moderate injuries. This generally includes injuries that do not require surgery such as strains, sprains, and contusions.
How to Maximize Your Car Accident Settlement
After an accident, most insurance agencies will try to get you to settle for a much lower amount than your damages are worth. Insurance adjusters do not consider the long-term effects of major injuries, nor the impact they will have on nearly every aspect of your life. To maximize the settlement for your accident, it is recommended to do the following:
- Get examined by a medical professional. Suffering major injuries is not a time to act tough and attempt to “walk it off.” If you are injured, get examined by a doctor. Without a professional diagnosis, the insurance company will have just cause to assume you were never injured.
- Follow your doctor’s orders. By sticking to a treatment plan, you give yourself the best shot at a full medical recovery and show the insurance company how serious your injuries are.
- Keep and organize your receipts. Keep all documentation associated with your injury, especially documentation of your medical treatment.
- Get a quote for your vehicle damage. Reimbursement estimates for vehicle damages will be relatively low unless you provide proper documentation for what your damages are worth.
- Don’t wait to file your lawsuit. Time is limited when making an accident claim.
Contact a Modesto Car Accident Lawyer in California
If you or a loved one has been injured in a car accident in Modesto, the Maison Law Accident & Injury Lawyers of Modesto are here to get you the compensation you need. Car accidents are complicated and traumatic situations that no one deserves to manage alone. Partner with expert legal counsel today by contacting us for a no-cost, no-obligation consultation. We’ll guide you through the legal process step-by-step and ensure you’re protected from liability and being “low-balled” by the insurance companies.