Do I Have to Pay Taxes on My Personal Injury Settlement in Detroit?

heading divider
Do I Have to Pay Taxes on My Personal Injury Settlement in Detroit?

When you’ve been seriously injured in an automobile accident in Michigan and expect to win a sizable settlement, you may be concerned about having part of your award claimed by taxes.

Take heart. Michigan is a “no-fault” insurance state and, in most cases, victims are not required to pay taxes on their personal injury settlement. There are exceptions, however.

Choose wisely when hiring your personal injury lawyer in Detroit. David Christensen with Christensen Law will fight aggressively to obtain the compensation you are entitled to and help you minimize any tax consequences on your settlement if there is any tax at all.

Is a Personal Injury Settlement Considered Taxable Income in Michigan?

In general, your personal injury payout is not considered taxable income in Michigan. This is because the law generally does not consider compensation for bodily injury to be taxable income.

The most important factors to consider when trying to determine whether a car accident settlement is taxable income are who is recovering compensation under the settlement terms and what is the compensation for.

What Can and Cannot be Taxed After an Injury Settlement?

When determining the answer to “do you have to pay taxes on insurance payout,” it is important to consider what portions of your injury settlement can and cannot be taxed.

Your personal injury settlement does not count as taxable income in Michigan if the claim was for your pain and suffering, medical bills, and for lost wages that are paid by your no-fault insurer.

On the other hand, payments for attendant care services are not taxable if paid to the injured party, but are taxable if paid directly to the individuals providing these services. Attendant care involves providing assistance for people with disabilities to perform tasks of daily living that they cannot do themselves.

That brings us to payouts for emotional and psychological damages that are often an ongoing part of recovering from a serious car accident. Generally, these payouts are not taxable. However, if you agree to keep your settlement confidential, your entire award may be taxable unless you assign a specific value to that promise of confidentiality. So, the best way of handling those issues is to assign a value directly in the settlement paperwork, and those funds paid for confidentiality would be taxable to the injured person. No-fault insurance law changes from time to time so it’s important to stay up to date on the specifics.

Do I Need to Report My Settlement to the IRS?

For the most authoritative answer, ask your personal injury lawyer or tax professional whether your settlement must be reported to the IRS. It depends on the individual facts and circumstances of your specific case. For instance, your settlement may be the sum of multiple claims, not just one. The general rule, however, is no.

A tax-savvy attorney will structure each claim to give you the greatest advantage. The IRS will typically go along with the settlement and only expect you to report the taxable portions of your settlement if they fit with the claims. Current IRS guidance helps to clarify tax implications.

Contact a Personal Injury Lawyer in Detroit If You’ve Been Injured

David Christensen, Personal Injury Lawyer in Detroit, MIIf you have questions about the taxation of damage awards and settlement payments or any other aspect of your personal injury claim, Christensen Law can help. With our firm, you pay no legal fees unless we win and your initial consultation is free. Contact us now and give yourself the full advantage of a personal injury firm with the skill, experience and resources that can achieve the compensation you need and deserve.