Is My Minnesota Personal Injury Settlement Taxable?

Personal injury cases and their settlements are complex, but are these earnings taxable? Will you have to fork over some of your settlement to Uncle Sam on your taxes, or will you get to keep the entire settlement? We take a closer look at the tax liability you may incur in the wake of a Minnesota personal injury settlement.

Are Injury Settlements Taxable?

The following is just general advice, simply because every case is unique. Most of the time the following statements hold true, but we’re not accountants or tax attorneys, so don’t take everything you read below as the law. If you have questions about the tax implications of your award, reach out to a financial advisor or tax accountant.

With that said, in general your compensatory damages are not typically subjected to taxes in Minnesota. Compensatory damages can be economic or non-economic in nature, and they help to offset expenses or quality of life changes you’ve experienced as a result of your accident. Examples of compensatory damages include:

Current and Future Medical Bills
Lost Wages
Property Damage
Pain and Suffering
Quality Of Life Loss

This isn’t a comprehensive list, but these compensatory damages are typically not taxable by the government. One common exception to this is if you paid for the medical service in a previous year, deducted the expense and then received a tax credit or benefit. You’ll need to report the amount in tax credits for the previously deducted medical expense for the year you receive your settlement. Other than that, you typically need not worry about having to pay taxes for compensatory damages in a Minnesota personal injury case.

Punitive Damages Differ

You may also be eligible to collect punitive damages after a personal injury accident, and these will be taxable. Punitive damages are oftentimes issued as a way to punish the defendant for the harm they caused. They are not typically ordered in a run-of-the-mill accident, but if extreme negligence or intentional reckless actions resulted in your injuries, you can be awarded punitive damages.

Juries oftentimes award punitive damages for “wanton and willful misconduct,” like if someone intentionally caused your accident, or you were struck by a drunk driver who acted negligently and recklessly by getting behind the wheel while inebriated. Punitive damages can also be awarded in medical malpractice cases in Minnesota.

If you earn punitive damages in your personal injury case, know that you’ll likely have to pay taxes on the full amount before lawyer fees.

So while punitive damages are taxable in Minnesota, the more common compensatory damages are not typically taxed. If you have questions about your individual case, or you want help securing an award, reach out to Dean and the team at Margolis Law Firm today at (952) 230-2700.