Skip to main content
Recent Blog Post

Are Car Accident Settlements Taxable in Michigan?

Key Takeaways:

  • Most aspects of Michigan personal injury settlements, such as medical expenses, are not taxable.
  • Matz Injury Law does not segment out client settlements in a way that subjects them to taxes.
  • Any interest an injured person earns on their settlement amount is taxable and must be reported to the IRS.
  • A CPA can help you manage your settlement to comply with IRS reporting. They can also guide you in making informed decisions about your finances.

A Michigan car accident can leave you in serious pain with severe injuries, and the last thing you want to think about is the legal process to get a settlement. Even if you successfully navigate the complicated process of fighting for compensation, communicating with auto insurance companies, and filing claims, you may not even get to keep all of it. You may risk losing a significant part of your settlement to unnecessary taxes.

Take a closer look at which parts of your settlement after an injury may be subject to taxes. Matz Injury Law can help you fight for compensation and reduce your tax obligation. Our goal is for you to take home as much money as possible.

Is a Car Accident Settlement Taxable in Michigan?

No, a settlement received from a car accident lawsuit is not taxable. These damages represent compensation to you for physical and emotional pain and suffering incurred because of the collision. The IRS Code has consistently held that compensatory damages received due to a personal injury are excludable from gross income.

However, some parts of your settlement may be considered taxable income. Having a lawyer alongside a certified public accountant can help you avoid potential taxes as much as possible.

Which Parts of a Personal Injury Settlement Are Taxable?

Some aspects of personal injury compensation may be taxable depending on the reason for the specific compensation. The following lists the most common factors in a settlement and whether they are taxable.

  • Pain and Suffering: Compensation for pain and suffering damages is not typically taxable.
  • Lost Wages: Compensation for wage loss is usually not taxable, but taxes may be levied on any compensation paid beyond the three-year mark or the monthly maximum rate in Michigan.
  • Replacement Services: Some accident victims are injured to the point where they cannot complete basic household chores. Compensation for replacement services is taxable income.
  • Attendant Care Services: If injuries warrant consistent routine care, you may need a personal medical attendant. Compensation for attendant care services is taxable income.
  • Exemplary Damages: These damages are very rare but can be taxed except in wrongful death cases. Michigan does not have punitive damages.

Your settlement does not need to be broken into specific line items, so taxes are largely irrelevant. At Matz Injury Law, we do not specify which parts of your settlement go where. We list the entire sum as pain and suffering, which is not taxable.

Learn how you can keep more money with Matz. Call today for a FREE consultation.

How Do I Reduce Car Accident Settlement Taxes?

How your settlement is taxed depends on how your settlement is structured. Working with an experienced attorney can help structure your settlement to avoid as many taxes as possible. At Matz Injury Law, we do not specify different reasons for compensation in your settlement. It is all listed as pain and suffering, which is not taxable.

Related Resources

Why Clients Choose Matz Injury Law

At Matz Injury Law, our legal professionals work to help accident victims in Michigan emerge with as much money in their pockets as possible. Not only do we have a history of winning compensation for our clients, but our contingency fee is only 22% as opposed to the typical 33%. That means that even when we win your case, you still only have to pay us a fraction of what you typically would.

Some of our recent settlements include:

  • $4.15 million settlement in Washtenaw County
    • The client kept an additional $470,195 with Matz Injury Law’s “22, not 33” fee.
  • $3.45 million settlement in Genesee County
    • The client kept an additional $390,000 with Matz Injury Law’s “22, not 33” fee.

Related resource: Championing a Lower Attorney Contingency Fee

Take a look at what some of our previous clients had to say about our services.

Testimonials

Steve is nothing short of amazing! He is currently helping me with my lawsuit and has been THE best. He is very knowledgeable and works hard!!! He is very guiding and informational, and the guidance he gives every step of the way is phenomenal. I’d be lost without help!” — Tiffany L.

“I worked with Steve and his staff for almost 3 years. Every interaction I had with him or the staff was great. Always happy, very personable, and always pleasant to speak with. Steve goes above and beyond for his clients and for this I am very grateful to have worked with him. If ever in need again, he will be who I contact to represent me.” — Jessica D.

Helping Michiganders Maximize Their Settlements

At Matz Injury Law, we work to help Michiganders get as much as possible from their personal injury claims. Our Southfield law firm knows how hard it can be to deal with the aftermath of an accident, which is why we strive to put as much money in your pocket as possible to make the process easier. Get started with a free consultation by calling us at 1-866-22Not33 or filling out our online contact form.

Frequently Asked Questions

Do I Report a Personal Injury Settlement to the IRS?

You have to report any aspect of a personal injury settlement to the IRS that is taxable. You can determine which aspects are taxable by speaking to a certified public accountant to keep your reported income accurate.

Is the Interest From a Michigan Personal Injury Settlement Taxable?

Yes, interest from a personal injury settlement in Michigan is taxable. You can work with a CPA to determine how much interest has accrued in certain circumstances and its tax implications.