Is Your Injury Case Settlement Taxable?

Written by Steven Matz on . Posted in .

“Is the settlement I received as a result of my motor vehicle collision taxable?”

What To Know About Your Injury Case Settlement

A settlement received in connection with your lawsuit for pain and suffering due to injuries sustained in a crash 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 on account of a personal injury are excludable from gross income.

Requirements

In order for a settlement or award to be excluded from income, it must be based out of an action for “tort or tort type rights,” and “must provide the availability of a broad range of damages, such as damages for emotional distress, pain, and suffering.” A personal injury case arising out of the negligent operation of a motor vehicle satisfies this requirement.

The second requirement is that the damages must be received “on account of personal injuries or sickness.” A leading example by the Supreme Court considered this very issue, where a “taxpayer who is injured in an automobile accident sues for (1) medical expenses, (2) pain, suffering, and emotional distress that cannot be measured with precision, and (3) lost wages.” According to the Court, “the second requirement would be met for recovery of (1) the medical expenses for injuries arising out of the accident, (2) the amounts for pain, suffering and emotional distress, and (3) the lost wages as long as the lost wages resulted from the time in which the taxpayer was out of work due to the injuries sustained in the accident.”

Additionally, Rev. Rul. 85-97, 1985-2 C.B. 50 concludes that the entire amount of a settlement received by a taxpayer who was injured after being hit by a bus was excludable from gross income as “amounts received on account of personal injuries” and therefore not taxable.

Commissioner v. Schleier, 515 U.S. 323 (1995), and Rev. Rul. 85-97, 1985-2 C.B. 50.  For more information, click here and go to page 3.

For More Information on Michigan Laws

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Written By Steven Matz

Steven J. Matz is a founding shareholder of Matz Injury Law. The firm’s concentration is on personal injury litigation, with an emphasis on traumatic brain injury. Mr. Matz earned a Bachelor of Arts degree with high distinction and highest honors in 1974 from the University of Michigan and a Juris Doctor degree in 1977 from The George Washington University National Law Center. Mr. Matz lectures and publishes in a number of areas, including ethics, marketing, trial tactics, and head injury. Mr. Matz has served on the Michigan Association for Justice Executive Board and currently serves the Michigan Attorney Discipline Board as a Hearing Panel Chairman and Master. He is also a member of the State Bar Committee for Character and Fitness.
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The maximum contingency fee permitted by law is actually 33 1/3%. Michigan court rules require that the attorney fee be computed on the net sum recovered after deducting all disbursements properly chargeable to the enforcement of the claim.

What does 22not33 mean, exactly?

We can charge 22% while virtually all other injury attorneys charge 33 1/3% because we are very, very, good at obtaining results for our clients. 

We do not spend millions of dollars on television ads; instead, we offer a lower fee to all our clients.  We do not have dozens of lower paid associates handling our work. All our clients are represented by Steven and Jared Matz. Steven Matz started the firm in 1977 and since then has dedicated his life to representing injury victims.  Jared joined the firm in 2016 but grew up listening to stories, discussing theories, and generally learning at the dinner table about how to effectively and compassionately represent injury victims. Jared Matz was literally born to represent individuals involved in motor vehicle crashes.

All of our cases are handled on a contingency fee and all our cases are handled at 22%. Whether the case settles or goes through trial, the fee does not change. While our competitors make excuses as to why they charge so much, we are obtaining results for our clients at a lower fee.

At a typical television advertising law firm, your first call will be handled by a receptionist, who may refer you to an intake person, who will discuss your claim with an intake manager, who then discusses your claim with an associate, who may then report to a partner. You may never speak with the person whose name is at the top of the letterhead. At Matz Injury Law you will always speak with either Steven Matz or Jared Matz.

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