Are Personal Injury Settlements Taxable?
As a general rule, the compensation received from most personal injury claims (either through a settlement or jury award) is not taxable under either federal or state law.
According to the IRS, if you have received a settlement or jury award for a personal injury claim—and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years—the full amount is non-taxable and you do not need to include the settlement proceeds in your reported income.
On the other hand, compensation for lost wages, emotional distress or lost business profits are taxable, as is any interest added to your judgment for the length of time that the case has been pending. Punitive damages (though rarely awarded) are also taxable by the IRS.
It goes without saying that tax law can be complex, and this page should not be taken as legal advice. There may be factors in your case which can have an impact on your financial responsibilities. As such, we strongly advise you to speak to a tax professional in your state to learn how the law applies to your specific case.
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