Injury settlements, fees and taxes: what you keep depends on more than the number
I am Mitchell Bisson, a Grand Rapids personal injury lawyer. I have litigated for over 15 years. This page explains how a Michigan injury settlement is divided up after it is agreed: the attorney fee rule, case costs, repayment claims from no-fault insurers and Medicare, how federal law treats the money for income tax, settlements for injured children, structured settlements and interest on a judgment. I represent injured people, not insurance companies. I do not promise outcomes, and nothing here predicts what any claim is worth.
The short answer. In a Michigan personal injury, wrongful death or no-fault benefits case, the maximum contingent fee is one-third of the amount recovered, computed on the net sum after case disbursements, and the agreement must be in writing with a copy to you. MCR 8.121(B), (C)(1), (F). Federal law excludes from gross income damages, other than punitive damages, received on account of personal physical injuries or physical sickness. 26 USC 104(a)(2). Repayment claims, bills and liens can still reduce what reaches you, so I ask for the arithmetic in writing before any settlement is accepted. Nothing here is tax advice.
Clients usually ask two questions near the end of a case. How much will I keep, and will I owe tax on it? The honest answer starts with the gross number and works down. The fee comes out under a court rule. Costs advanced to run the case come out. A no-fault insurer, Medicare or a health plan may be owed money. Then there is the question of how the settlement is paid, all at once, in installments or into a protected account for a child.
Each step has its own rule. Some of those rules are in Michigan court rules and statutes, some are in federal law, and some depend on the settlement paperwork. I walk through each one with you before you decide, because the decision to settle is yours.
Where the money goes: a Michigan settlement from gross to net
The table lists the items I review on almost every injury settlement. Which of them apply depends on the facts of your claim.
| Item | What the rule says | Authority |
|---|---|---|
| Attorney fee | The maximum allowable contingent fee in a personal injury, wrongful death or no-fault benefits claim is one-third of the amount recovered. A lawyer may agree to a lower fee. The agreement must be in writing, with a copy to the client. A fee above the permitted amount is treated as a clearly excessive fee, unless it results from an award of attorney fees under MCL 500.3148 or another award or sanction made under a statute, court rule or the common law | MCR 8.121(A), (B), (D), (F) |
| How the fee is computed | The fee is figured on the net sum recovered, after deducting disbursements properly chargeable to enforcing the claim. In a judgment, taxed costs and interest count as part of the amount recovered. For a settlement paid in installments, the fee is computed on the present value of the future payments | MCR 8.121(C)(1), (2) |
| Case costs (disbursements) | Amounts advanced to run the case, such as filing fees and records, are deducted from the recovery before the fee percentage is figured. Your fee agreement should say how they are handled | MCR 8.121(C)(1) |
| No-fault insurer repayment | A no-fault insurer may not subtract benefits because of the value of a tort claim for the same injury. Subtraction or reimbursement is allowed only for a tort recovery on an out-of-state accident, a claim against an owner or operator who lacked the required security, or a claim based on intentionally caused harm, and only for damages for which benefits were or would be payable. It is limited to the recovery less reasonable attorney fees and expenses of obtaining it, and the insurer has a lien to that extent | MCL 500.3116(1), (2) |
| Medicare | Medicare may not pay for an item or service to the extent payment has been made, or can reasonably be expected to be made, under liability insurance, an automobile policy or no-fault insurance. If that coverage has not paid promptly, Medicare may make a payment conditioned on reimbursement | 42 USC 1395y(b)(2)(A), (B) |
| Income tax | Federal gross income does not include damages, other than punitive damages, received by suit or agreement, as a lump sum or periodic payments, on account of personal physical injuries or physical sickness. Emotional distress is not treated as a physical injury or sickness, except for damages up to the amount paid for medical care attributable to emotional distress | 26 USC 104(a)(2) |
| Settlement for a minor | After suit is filed, the judge assigned to the case must pass on the fairness of a settlement for a minor. If the settlement requires payment of more than $5,000 to the minor in a single year, a conservator must be appointed by the probate court before judgment or dismissal enters | MCR 2.420(B), (B)(4) |
| Interest on a judgment | For complaints filed on or after January 1, 1987, interest runs from the filing date at 6-month intervals, at 1% plus the average 5-year Treasury note auction rate, compounded annually. Interest is not allowed on future damages from filing to judgment | MCL 600.6013(1), (8) |
The attorney fee rule
Michigan caps contingent fees in injury and no-fault cases by court rule. The maximum allowable fee for a personal injury, wrongful death or no-fault benefits claim is one-third of the amount recovered. A fee at or below that amount is deemed fair and reasonable, and a fee above it is treated as a clearly excessive fee, unless it comes from an award of attorney fees under MCL 500.3148 or another award or sanction under a statute, court rule or the common law. MCR 8.121(A), (B). A lawyer may agree to a lower fee. MCR 8.121(D).
The cap is figured on the net sum. The disbursements properly chargeable to the claim are subtracted first, and the fee is a share of what remains. When a case ends in a judgment, taxed costs and any interest in the judgment are counted as part of the amount recovered. MCR 8.121(C)(1). Here is the arithmetic only, with round numbers and no prediction of any result: on a $90,000 recovery with $3,000 in disbursements, the net sum is $87,000, and one-third of that is $29,000. The cap is a ceiling, and a lawyer may charge less.
Two process rules protect you. The lawyer must advise you, before a contingent arrangement is made, that lawyers may be employed on other fee arrangements, such as an hourly or per diem basis. And the contingent fee agreement must be in writing, with a copy given to you. MCR 8.121(E), (F). I explain my fee arrangement at the consultation, before you decide whether to hire me.
No-fault benefit disputes have a separate fee provision. When an insurer unreasonably refuses to pay or unreasonably delays paying overdue personal or property protection benefits, the court may make the attorney fee a charge against the insurer in addition to the benefits recovered. A lawyer representing an injured person on a personal protection benefits claim may not claim, file or serve a lien for a fee until payment of the claim is authorized and is overdue. MCL 500.3148(1).
For a settlement paid over time, the rule looks to present value. If an annuity contract funds the payments, present value is the actual cost of the annuity contract, and the defense attorney must disclose that amount to the court and the parties. If the defendant pays directly, present value is what an entity of the same financial standing would pay for an annuity contract, and the court may appoint an independent professional to certify it. MCR 8.121(C)(2).
Repayment claims: no-fault insurers, Medicare and other payers
A settlement is not always yours to keep in full. Someone who paid for your care or income loss may claim repayment. I identify every possible payer in writing before a settlement is accepted and ask each one for its claimed amount.
No-fault insurers. The general rule favors the injured person. A subtraction from personal protection insurance benefits must not be made because of the value of a claim in tort based on the same bodily injury. MCL 500.3116(1). The exceptions are narrow: a tort claim from an accident outside Michigan, a Michigan tort claim against an owner or operator whose required security was not in effect, or a claim based on intentionally caused harm. Even then, subtraction or reimbursement is allowed only to the extent the recovery is for damages for which the claimant received or would be entitled to receive benefits, and only up to the recovery less reasonable attorney fees and expenses of obtaining it. The insurer has a lien on the recovery to that extent. MCL 500.3116(2).
Two other parts of the statute matter at the settlement table. A person who pays the claimant with notice of the insurer’s interest, without making the claimant and the insurer joint payees or getting the insurer’s consent to a different method of payment, can owe the insurer indemnity. MCL 500.3116(3). And no subtraction or reimbursement is due from the part of a recovery that is for noneconomic loss, or for allowable expenses, work loss and survivor’s loss in excess of what the insurer paid. MCL 500.3116(4).
Medicare. Medicare is a secondary payer when liability, automobile or no-fault coverage has paid or can reasonably be expected to pay. If that coverage has not paid or cannot reasonably be expected to pay promptly, the Secretary may make a payment, and it is conditioned on reimbursement to the trust fund. A primary plan’s responsibility can be shown by a judgment, by a payment conditioned on the recipient’s compromise, waiver or release whether or not liability is admitted, or by other means. 42 USC 1395y(b)(2)(A), (B). If reimbursement is not made within 60 days after notice or information about the primary plan’s responsibility is received, the Secretary may charge interest. The United States may also recover from an entity that received payment from a primary plan or from the proceeds of a primary plan’s payment. 42 USC 1395y(b)(2)(B)(ii), (iii).
An applicable plan, which includes a liability insurer, no-fault insurer or workers’ compensation plan, must determine whether a claimant is entitled to Medicare and, if so, submit the required information to the Secretary. 42 USC 1395y(b)(8)(A). In practice that means a settling insurer may ask whether you are on Medicare, and I raise it with clients early so a conditional payment does not surface after the money has been spent.
Health plans and others. Employer health plans, Medicaid and other payers may assert reimbursement rights under their own plan terms or laws. I read the plan documents and the notices you have received, and I do not assume a claimed amount is correct until I have checked it.
Do you owe income tax on an injury settlement?
I am a lawyer and not a tax adviser, and this section is general information only. The federal starting point is 26 USC 104(a)(2). Gross income does not include the amount of any damages, other than punitive damages, received by suit or agreement, and whether as lump sums or periodic payments, on account of personal physical injuries or physical sickness. 26 USC 104(a)(2).
Three features of that text matter in practice. First, punitive damages are carved out. Second, the exclusion is tied to damages received on account of personal physical injuries or physical sickness, so how the settlement describes the payment matters. Third, the statute says emotional distress is not treated as a physical injury or physical sickness for this purpose, although the statute does not apply that sentence to an amount of damages not in excess of the amount paid for medical care attributable to emotional distress. 26 USC 104(a).
The same section covers other kinds of money an injured person may receive. It excludes amounts received under workmen’s compensation acts as compensation for personal injuries or sickness, and amounts received through accident or health insurance for personal injuries or sickness, subject to the employer-contribution exception in paragraph (3). 26 USC 104(a)(1), (3). A question about how a particular payment is reported belongs with a tax professional.
Because the wording of a settlement agreement can matter, I make sure the agreement describes the nature of the payments accurately. If your settlement is large, structured, or includes claims other than physical injury, I recommend that you speak with a tax professional before you sign.
Settlements for an injured child
A child’s claim has extra steps. When an action has been filed for a minor, a proposed settlement must be brought before the judge assigned to the case, and the judge decides whether it is fair. For a personal injury claim, the child appears in court unless the judge excuses it for good cause, and the judge may require medical testimony if not satisfied about the extent of the injury. MCR 2.420(B)(1). Before an action is commenced, settlement of a claim for a minor is governed by the Estates and Protected Individuals Code instead. MCR 2.420(A).
If the next friend, guardian or conservator is also a claimant who will share in the recovery, the judge must appoint a guardian ad litem to approve the settlement. MCR 2.420(B)(2). If a settlement requires payment of more than $5,000 to the minor, or installments above $5,000 in any single year during minority, the probate court must appoint a conservator before judgment or dismissal enters, and payment is made to the conservator. MCR 2.420(B)(4)(a).
At or below that figure, the rule allows payment under MCL 700.5102. That statute lets a person who owes money to a minor pay up to $50,000 each year to the minor if married, to an individual having the care and custody of the minor with whom the minor resides, to a guardian, or into a savings account in the minor’s sole name, and the dollar amount is adjusted as section 1210 provides. It does not apply if the payer knows a conservator has been appointed or a conservator proceeding is pending, and the person who receives the money must use it for the minor’s support and education. MCR 2.420(B)(4)(b); MCL 700.5102(1)-(4). The statute was amended by 2024 PA 1, effective February 21, 2024, and the court rule text I reviewed still says $5,000, so I confirm the handling with the court before the settlement terms are set.
If a settlement creates a trust for the minor, the circuit court determines the amount paid to the trust, and the trust may not be funded without prior approval by the probate court after notice to interested persons and a hearing. MCR 2.420(B)(5).
Structured settlements and selling future payments
A settlement can be paid in a lump sum or over time. A payment stream often comes from an annuity, and the fee rule looks to the cost of that annuity when it figures the fee. MCR 8.121(C)(2). The choice between cash and installments is a financial and tax decision, so I tell clients to get independent professional advice on it.
Michigan restricts selling the future payments for a lump sum. A transfer of structured settlement payment rights is not effective, and the obligor or annuity issuer need not pay the buyer, unless the transfer is approved in a final court order based on express findings. Those include that the transfer is in the payee’s interest, taking into account the welfare and support of the payee’s dependents, that the buyer advised the payee in writing to seek independent professional advice, that the transfer does not contravene a statute or court order, and that the discount rate does not exceed 25% per year. MCL 691.1304(a)-(d).
A discount rate of up to 25% a year is allowed, and it can still be expensive, so I ask clients who are considering a sale to compare alternatives and to find out how much future income they would be giving up.
Interest on a judgment and why settlement offers matter
If a case goes to judgment, interest can be added. For complaints filed on or after January 1, 1987, interest on a money judgment is calculated at 6-month intervals from the date the complaint was filed, at 1% plus the average rate paid at auctions of 5-year Treasury notes during the 6 months before July 1 and January 1, as certified by the state treasurer, compounded annually. It is calculated on the entire amount of the judgment, including attorney fees and other costs. MCL 600.6013(8). Interest is not allowed on future damages from filing to the entry of judgment. MCL 600.6013(1).
Written settlement offers can change the interest. If a bona fide, reasonable written offer in a tort case is made by the party against whom judgment is later entered, is rejected and is filed with the court, interest is not allowed beyond the date it was filed. A defendant’s offer qualifies only if it is not less than 90% of the amount the plaintiff actually receives through judgment. An offer not accepted within 21 days is treated as rejected. MCL 600.6013(9), (14), (15)(a)(i).
It works the other way for a plaintiff. A plaintiff’s bona fide, reasonable written offer that is rejected and filed with the court, and that is not more than 110% of the amount the plaintiff actually receives through judgment, adds 2 percentage points to the interest rate from the date of rejection. MCL 600.6013(13), (15)(a)(ii). The date an offer is filed and its amount are details I track from the start of a case.
How I handle the money side of an injury case
- Put the fee in writing. Before I take a case, you get a written fee agreement and a copy, and I explain the fee rule and how costs are handled.
- Track the numbers as the case goes. I keep a running record of costs advanced, bills, payments and any notices from payers.
- Identify every possible payer. I look for no-fault insurers, Medicare, Medicaid, health plans and anyone else who may claim repayment, and I ask each for its claimed amount in writing.
- Check the settlement terms. I read the release, the payment terms and any language about liens, taxes or future payments before you sign.
- Show you the arithmetic. Before you accept, I give you a written breakdown from the gross figure to what you would receive after fees, costs and claimed repayments.
- Handle special approvals. If the claimant is a child, I prepare for the judge’s review and any conservator or trust steps the court rule requires.
- Disburse carefully. I pay the items that must be paid, hold what is disputed, and give you a final accounting.
What I need from you
Bring your fee agreement if you have another lawyer’s, every settlement offer, the release if you have seen one, medical bills and insurance explanations of benefits, and every letter from a no-fault insurer, health plan, Medicare or Medicaid. Bring a list of the providers who treated you and any lien or repayment notices. If a child is the injured person, bring the birth date and any court papers. Do not sign a release, a lien agreement or a settlement statement before we have talked, and do not ignore a letter from Medicare or an insurer asking for repayment.
Where your Kent County injury case will be heard
I represent injured people in Grand Rapids, Kentwood, Grandville, Wyoming and across Kent County. Michigan law sets the Kent County district courts by municipality. The 61st District Court serves the city of Grand Rapids, the 59th serves the cities of Grandville and Walker, the 62A serves the city of Wyoming and the 62B serves the city of Kentwood. MCL 600.8128a; MCL 600.8130(1)-(3). The 63rd District Court serves the rest of Kent County, which includes the cities of Rockford, Lowell, Cedar Springs and East Grand Rapids and the surrounding townships. MCL 600.8130(4). Under MCL 600.8301(1), the district court has exclusive jurisdiction in civil actions when the amount in controversy does not exceed $25,000. Larger claims are filed in the circuit court, which for Kent County is the 17th Judicial Circuit. MCL 600.518. A settlement for a child in a pending case goes before the judge assigned to that case. MCR 2.420(B).
Why people hire me for an injury claim
You work directly with me, the lawyer handling your matter. I tell you how the fee rule works, what may come out of a settlement before it reaches you, and what I do not yet know. I do not promise outcomes, and I do not take a settlement decision out of your hands.
I represent injured people, and I explain my fee at the consultation, before you decide whether to hire me.
Questions I hear from injured Michigan clients about settlements, fees and taxes
How much can a Michigan lawyer charge as a contingent fee in an injury or no-fault case?
Under MCR 8.121, the maximum allowable contingent fee in a personal injury, wrongful death or no-fault benefits case is one-third of the amount recovered. The fee is computed on the net sum recovered after disbursements properly chargeable to the claim, and the agreement must be in writing with a copy given to the client. Fees awarded against an insurer under MCL 500.3148 are outside the cap.
Does a judge have to approve a settlement for an injured child in Michigan?
Yes, once a lawsuit has been filed. Under MCR 2.420, when an action is brought for a minor by a next friend, guardian or conservator, the judge assigned to the case must pass on the fairness of a proposed settlement, and in a personal injury claim the child generally appears in court unless the judge excuses it for good cause. If the settlement requires paying the child more than $5,000 in a single year during minority, the court rule requires the probate court to appoint a conservator first. At $5,000 or less in a year, the money may instead be paid under MCL 700.5102, a statute that now allows payment to the person who has the child’s care and custody up to $50,000 a year, and the court rule’s wording, not the statute’s higher limit, sets the conservator requirement in a settlement.
Does interest accrue on a Michigan personal injury judgment from the date I filed suit?
Generally yes, for past damages. Under MCL 600.6013, interest on a money judgment in a civil action runs from the date the complaint was filed, calculated at 6-month intervals at a rate of 1% plus the average 5-year Treasury note auction rate, compounded annually. Interest is not allowed on future damages, and a rejected written settlement offer from the defendant that is filed with the court and is at least 90% of the final judgment can cut off interest.
Do I owe income tax on a personal injury settlement?
Often not on the compensatory part. Under federal law, 26 USC 104(a)(2), gross income does not include the amount of any damages, other than punitive damages, received by suit or agreement, as lump sums or periodic payments, on account of personal physical injuries or physical sickness. Punitive damages and amounts that are not on account of physical injury can be treated differently.
Can I sell my structured settlement payments for a lump sum in Michigan?
Only with court approval. Under MCL 691.1304, a transfer of structured settlement payment rights is not effective, and the obligor or annuity issuer need not pay the buyer, unless the transfer is approved in a final court order based on express findings. The court must find the transfer serves the payee’s interests, taking into account the welfare and support of the payee’s dependents, that independent advice was given or waived in writing, and that the discount rate does not exceed 25% per year.
If I am on Medicare, does that affect how a personal injury or no-fault claim settles?
It can. Under 42 USC 1395y(b)(2), Medicare does not pay for an item or service to the extent payment has been made, or can reasonably be expected to be made, under liability insurance or no-fault insurance. If that coverage has not paid promptly, Medicare may make a conditional payment, and that payment must be reimbursed. Medicare’s payments for accident-related care can therefore come into the settlement discussion, and the rules should be checked before any money is paid.
If I settle with the at-fault driver, does my no-fault insurer get paid back out of my settlement?
Usually not. MCL 500.3116(1) bars subtracting PIP benefits because of the value of a tort claim for the same injury, and subsection (2) allows subtraction or reimbursement only for a recovery on an out-of-state accident, a claim against an owner or operator who lacked the required security, or a claim based on intentionally caused harm. Even then it is limited to the recovery less fees and expenses.
Related Michigan pages
- Grand Rapids personal injury lawyer
- Wrongful death
- Medical malpractice
- Injury deadlines and statutes of limitation
- Negligence
- Michigan legal FAQs
I represent injured people in Kent County and West Michigan, and I explain the fee, the costs and the repayment claims before you accept a settlement. Contact me 24/7 by phone or email. Your Rights, My Fight! Call for a free initial consultation.
Big-Firm Power. Street-Level Grit.
Law Offices of Mitchell S. Bisson, 2828 Kraft Ave SE, Suite 295, Grand Rapids, MI 49512, serving Kent County and West Michigan.
This page provides general information about Michigan law and is not legal advice. Reading it does not create an attorney-client relationship. Laws change and every case turns on its own facts. Consult a licensed attorney about your specific situation.