Question: Is My Personal Injury Settlement Taxable?

Generally, personal injury recoveries are not taxable. The federal tax code provides that “amounts received under workmen’s compensation acts as compensation for personal injuries or sickness” and “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness” are exempt from taxation except to the extent that you may have taken deductions for health care costs that ultimately become covered by your settlement. This is not meant to be taken as tax or accounting advice since there may be specific factors unique to your situation that should be analyzed by a qualified tax professional. However, unless otherwise advised you will probably not have to pay taxes on your settlement. The actual provision can be found at 26 U.S. Code § 104 – Compensation for injuries or sickness.