The No Fault Law specifically states that No Fault benefits ‘for loss of income are not taxable’; non-taxable nature reduces payments to 85% of actual wages; tax implications of a pain and suffering compensation settlement?
Tax time is coming and, along with it, comes the questions that our auto accident attorneys receive from many of their clients this time of year:
Do I have to pay taxes on my No Fault wage loss benefits?
The answer is: No, you don’t.
Why? Because the Michigan auto No Fault Law says so.
Our auto law is very specific about this – clarifying that Michigan car accident victims do not have to pay taxes on the No Fault wage loss benefits they receive from a No Fault auto insurance company.
The No Fault auto insurance law states that “the benefits received from personal protection insurance for loss of income [i.e., wage loss benefits] are not taxable income.” (MCL 500.3107(1)(b))
To learn more about No Fault wage loss benefits – such as how long they last and how they’re calculated – please check out our blog post, “Michigan No-Fault Law 101: Basics of wage loss benefits.”
Additionally, click here to find out what the maximum monthly Michigan No Fault wage loss amount is.
How does the non-taxable nature of No Fault wage loss tie into the 85% lost wage number?
Because of their non-taxable nature, the No Fault wage loss benefits payable by insurers are reduced to 85% of the wages the car accident injury victim would have earned if her auto accident-related injuries hadn’t disabled her from working.
Do you have to pay taxes on a pain and suffering lawsuit settlement?
Good news here as well.
If your injury attorney has reached a settlement on pain and suffering compensation from any Michigan automobile accident, then, generally speaking (and subject to a few caveats), you do not have to pay taxes on it. Click here to learn more about the tax implications of your car accident settlement for “noneconomic loss” damages.