You are on the brink of signing a settlement agreement for your workers’ compensation case, when you have a sudden thought: will you have to pay taxes on the settlement money? You have heard that the tax laws changed at the beginning of 2018, and you fear that you will lose 30 percent or more of the hard-bargained amount to the government. You hesitate and consider backing out of the agreement.
Stop worrying and rest easy, because you will not have to pay taxes on your settlement. The United States tax laws state that all of the following are not taxable:
- “Workers’ compensation for an occupational sickness or injury if paid under a workers’ compensation act or similar law.”
- “Compensatory (but not punitive) damages for physical injury or physical sickness.”
- “Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.”
(IRS Publication 907.)
As long as your settlement falls under the Minnesota workers’ compensation laws, it will not be taxable. If you had to file a civil lawsuit as a result of your workplace injuries, a settlement of that case might not be taxable too. Settlements of personal injury civil lawsuits generally do not get taxed because the money counts as compensatory damages for physical injury.
Before you get paid your settlement, you do need to have it approved by a judge. If you do not have a lawyer, the judge will review and evaluate the entire Stipulation for Settlement. In theory, this is to protect you from entering into a grossly unfair settlement. In practice, it is a formality. If you want to make sure to get a fair settlement deal, talk to a lawyer before you start negotiating. Also, if you have a lawyer, the approval process will go a little more quickly.
Keep in mind that settlements in workers’ compensation cases can resolve all claims or only some claims for benefits. For example, you could settle as to wage loss benefits only and get paid a lump sum representing future benefits. Your medical benefits claim would remain open, and the insurance company would have to continue paying medical expenses until either you do not need them or you settle that claim. Either way, your settlement is not taxable.
Are you in need of a lawyer to help you negotiate a workers’ compensation settlement? Joe Osterbauer, Esq. and the Osterbauer Law Firm stand up for injured Minnesota workers’ rights. Joe’s 27 years of workers’ compensation experience and his team’s speedy service combine to get clients the results they need. To schedule a free consultation, visit Osterbauer Law Firm online or call Joe’s office at (612) 334-3434.