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Is My Car Accident Settlement Taxable?

If you were injured in a car accident and able to walk away with a settlement, you may be wondering whether or not the IRS will require you to pay taxes on it. While these rules vary from state-to-state, car accident victims in Michigan generally don’t have to because of the No Fault law.

Established in the 1970’s, Michigan’s no-fault insurance system is mandatory for every car owner. If you have a car accident, no-fault insurance pays for your medical expenses, wage loss benefits, replacement services, and the damage you do to other people’s property—no matter who’s fault. Thanks to this law, car accident victims typically do not have to pay taxes on benefits they receive.

  • Pain and suffering settlements are tax-free. However, if you agree to a confidential settlement, the entire amount may be taxable. Remember that tax laws and the No Fault law could change at any time, so you should always stay up to date with the help of your attorney.
  • Your wage loss is also tax-free, because it has already been reduced to 85% under the No Fault law. If you are still disabled and you file a claim for excess economic loss, this second claim for lost wages will be taxable.
  • If you are receiving replacement services and/or attendant care, they are taxable because they are considered income to the person doing the services. Each case is unique, so you should run this by your CPA and attorney before filing taxes.
  • Disability benefits received by a guardian on behalf of an injured person are not included in the gross income, so they are not taxable.

State laws vary widely when it comes to car accident settlements and claims. For this reason, you need to contact our Detroit car accident attorneys immediately. We can provide top-notch legal counsel and work tirelessly to obtain maximum compensation on your behalf.

Call (248) 793-2010 or contact us today to speak to a lawyer.

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