Most car insurance settlements in Minnesota are not taxable. However, portions awarded as punitive damages, along with a few other rare exceptions, may be taxed. Our skilled car crash lawyers can help you determine if your car accident settlement is taxable and identify any special circumstances that may apply to your case. Call (651) 437-3148 or contact us online to schedule a free case review.
- Though most car accident settlements are tax-exempt, exceptions exist for punitive damages, interest payments, and previously deducted medical expenses.
- Compensation for physical injuries or related emotional distress is generally not taxable, while compensation for emotional distress unrelated to a physical injury is taxable.
- Consulting with an experienced Minnesota car accident attorney and tax expert can ensure compliance with tax laws while reducing tax liability by properly structuring your settlement.
What Parts of a Car Accident Settlement Are Taxable in Minnesota?
Generally, only a few components of a personal injury settlement are taxable income, including punitive damages, interest payments, and previously deducted medical expenses. Any amount related to a physical injury is not taxable.
Punitive Damages
Punitive damages are intended to deter the defendant from repeating the behavior that led to the lawsuit by imposing a financial penalty. Courts only award punitive damages when the defendant’s conduct is particularly reckless or malicious.
Punitive damages are taxable because they do not compensate the plaintiff for a loss but rather represent new income. A rare exception arises in states where punitive damages are the only form of compensation allowed for wrongful death. This does not apply in Minnesota.
Interest Payments
When a plaintiff receives a settlement paid in installments, they may also receive interest accrued on those payments in addition to the settlement amount. These interest payments are considered taxable income because, like punitive damages, they do not compensate the plaintiff for anything they previously possessed before the injury.
Previously Deducted Medical Expenses
Compensation awarded to a plaintiff for medical expenses is generally not taxable. However, an exception applies if the plaintiff deducted those medical expenses from their taxes in a year before receiving the settlement. In this case, the amount deducted is taxable from the settlement.
What Parts of a Car Accident Settlement are Tax-Exempt?
Again, under federal law, compensation awarded in personal injury cases is generally not considered part of a person’s gross income and is therefore not taxed. This includes compensation for physical injuries or illnesses as well as for emotional distress and mental anguish related to those injuries. Conversely, compensation for emotional distress or mental anguish that does not stem from a physical injury or illness is taxable.
How Can a Car Accident Lawyer Help?
If you’ve been in a car accident and have gone through the lengthy process of negotiating a settlement or litigating your case, settlement taxes may be the last thing you want to think about. Consulting an experienced Minnesota car accident lawyer and tax expert can ease the burden by managing various tax-related issues and tasks on your behalf.
Minimizing Tax Liability
The taxability of your compensation will depend heavily on how your settlement is structured. During settlement talks, our experienced car accident attorneys can negotiate strategically to maximize the compensation tied to a physical injury or illness, working to ensure that it is not inappropriately categorized as taxable income.
It is important that these details be well-substantiated and justified in your settlement documents and evidence. You can count on us to handle your case with utmost care, professionalism, and integrity.
Clarifying Tax Rules for Minnesota
Our Minnesota car accident attorneys can also help you navigate state-specific tax laws, ensuring that your state and federal tax obligations are fully satisfied.
Work With Tax Experts
It is essential that the taxability of your settlement be addressed correctly. Our knowledgeable legal team maintains a strong professional network to assist in the cases we handle. When necessary, we can work with tax experts to address uncertainties.
Our Skilled Car Accident Attorneys Can Help
In most cases, the majority of car accident settlements in Minnesota are tax-exempt. Our skilled attorneys at Sieben Polk, P.A. can navigate your case through the legal system, negotiate a settlement, and help you understand the tax implications associated with your compensation.
We’re a nationally recognized law firm with deep Minnesota roots. We can work to maximize your compensation, evaluate your state and federal settlement taxes, and help you move forward with your life after an accident. Call (651) 437-3148 or contact us online to schedule a free case consultation.
