A personal injury settlement can offer needed financial assistance if you have suffered severe injuries in a Michigan accident caused by negligence. The amount of debt that accumulates after an injury can be overwhelming. And nothing can replace the value of an experienced Michingan personal injury lawyer and their ability to negotiate with insurance companies successfully.
Using a settlement most beneficially is always a consideration, and ensuring each need is met is crucial to helping an injury victim regain their life, which is a primary focus of White Law PLLC. It is natural to be concerned about taxation and settlements to prevent additional surprise financial setbacks. The tax codes are complicated and constantly changing, so understanding what you are being compensated for and if you owe taxes is vital.
Non-Taxable Settlement Amounts
There are certain types of personal injury damages in Michigan you can receive after being injured in an accident. Generally, when a settlement is to compensate for bodily injuries, the amount is not considered a taxable form of income by Michigan or the federal government. However, the reason compensation is awarded is a significant determinant in taxing.
Economic Compensation in Michigan Personal Injury Settlements
Determining economic compensation is primarily straightforward for personal injuries. A review of medical bills can determine the amount of settlement for these damages, costs for transportation to treatments, paystubs to confirm lost wages, or any other form of documentation that proves a financial cost due to your injury. Also, future medical expenses can be determined based on projected treatment costs.
Economic damages allocated in a personal injury settlement are not considered taxable, according to the Internal Revenue Service (IRS). State laws will generally follow the guidelines of federal regulations on taxation.
Non-Economic Compensation in Michigan Personal Injury Settlements
Additionally, an injury victim suffers damages not as easily quantified by a specific dollar amount as described in the personal injury damages above. Even though these damages are more challenging to define, they can contribute significantly to personal injury, and compensation for these damages is often available. When working with Michigan personal injury attorneys, it is vital to relay, discuss, and document every loss resulting from an injury.
Settlement amounts for non-economic damages resulting from a personal injury are also non-taxable amounts. It is vital to mention that non-economic compensation awarded to an individual not resulting from a personal injury settlement will be considered taxable income. Knowing the difference can be difficult, and the team at White Law PLLC will take the time to discuss your legal options and the taxable consequences if they apply to a settlement.
For example, you may witness a neighbor’s dog viciously biting and injuring someone. You may not have sustained a personal injury directly from the attack, but you might have suffered emotional trauma from the event, eventually leading to the need for medical intervention. When compensation is awarded because of emotional trauma resulting from situations where personal injury is not involved, the settlement may likely be considered taxable income, as described above in the IRS documentation.
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Taxable Settlement Amounts
As previously mentioned, what the settlement is meant to compensate for will determine whether it is taxable. In some instances, an act of negligence that causes injury can be identified as malicious or intentionally negligent. These damages are often referred to as punitive damages.
In Michigan, an individual can seek exemplary relief when an act of negligence qualifies. The purpose of punitive damages is to punish a defendant for their actions when considered malicious or egregious. However, Michigan’s award of exemplary damages serves as compensation to the injury victim instead of punishment for the defendant.
Proving exemplary damage is a complex process, with these damages most often awarded by a jury or judge when a case goes to trial instead of through settlement offers. When exemplary damages are awarded to an injury victim, the settlement amount is a taxable income and is claimed according to the IRS description of settlements and taxability, except for exemplary relief in Michigan wrongful death settlements. Working with qualified tax experts and Michigan civil litigation attorneys who are willing to advocate for your needs is imperative when criminal negligence or wrongful death (§104(c)(1). is involved.
Other Taxable Amounts in a Michigan Personal Injury Settlement
It is imperative also to discuss any interest earned from a personal injury settlement with a highly qualified CPA to avoid tax payment issues. The settlement amount for a personal injury is not taxable, but any interest earned can be taxed. Settlements, where the amount of compensation is agreed not to be disclosed, may also be subject to taxation when an amount covers other compensation besides personal injury.
Any medical bills that may have been itemized on taxes before a personal injury settlement was reached should be discussed. The compensation received may be subject to taxation when tax relief is given in a previous year for medical costs. It is understandable to have questions about personal injury settlements, and James White and the highly qualified personal injury team at White Law PLLC are ready to help.
Answers to Your Michigan Personal Injury Settlement Questions
Without a legal or accounting degree, it is troublesome to smoothly navigate the intricate legalities that apply to taxable settlements and Michigan personal injury claims. It is our job to serve you, and we strive to meet each expectation in complex matters with straightforward advice that is easy to understand. For a free consultation, contact the passionate advocates at White Law PLLC, who are willing to work for you to ensure you have all the answers to your questions about Michigan personal injury settlements.
White Law PLLC has also simplified the legal process for you, becoming a paperless law practice that allows reliable access to your case from any device. Not only do we believe in saving you in cost, but we also save our clients invaluable time. We apply the latest technology, allowing clients the ease of meetings and access to files from any convenient location.
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