The team at Hey Workers will do everything we can to get you a large and fair payout if you are injured in a car accident, and once you get your award, you want to keep what’s yours. Oftentimes clients wonder if Uncle Sam will come knocking during tax season to take a portion of their award. Is your car accident settlement taxable, or is it yours to keep? In today’s blog, we explain what parts of your Minnesota car accident award are taxable.
Will My Car Accident Settlement Be Taxed?
Let’s start with some good news. The vast majority of your car accident award will not be taxable. In fact, the entire award may not be subjected to taxes. However, there are certain situations where you may have to pay taxes on a portion of your award. Let’s dive into those aspects.
Interest – If you earn a relatively large award that you opt to have paid out in installments, or your child is injured and the court places a hold on the award until they turn 18, these settlements may be placed into an account that gains interest. This interest will be paid out to you as well, but any interest accrued on the settlement award will be subjected to taxes. This is usually a very small amount, but if it’s larger, it means you received a large interest payment on your award as well, which is an added bonus.
Punitive Damages – You may also have to pay taxes on any punitive damages that are awarded to you as a result of the accident. Punitive damages are damages paid to the victim for extremely reckless or dangerous actions by the defendant. This type of award is meant to punish the defendant and to deter repeat behavior. Someone who skids on some ice and causes an accident would not have to pay punitive damages, but someone who drinks alcohol in excess and runs three red lights before causing a major accident may be ordered to pay punitive damages. This is considered an extra payment on top of a normal car accident settlement, and is viewed as a source of income in the eyes of the government, meaning you would have to pay taxes on any punitive damages that are awarded.
Certain Medical Expenses – Finally, if you deducted medical expenses during one tax year and then received a settlement award the following year, the amount that you deducted would be taxable from the settlement. Outside of this instance, you’re not going to have to pay taxes on compensation you receive for medical expenses stemming from a car accident.
Finally, while it’s not a tax expense that you need to account for, Minnesota may garnish a car accident settlement award if you owe unpaid child support obligations. They will not set aside money for future payments, but if you have unpaid child support, a portion of your award may be held to settle those unpaid obligations.
If you want to get and keep more of your injury award, let the team at Hey Workers go to work for you. For more information, or for assistance with any part of your injury claim, reach out to our team today at (844) 439-9675.
