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Q.Are personal injury settlements taxable?
A.The answer depends on the "origin of the claim." Pursuant to IRC Section 104(a)(2), Non-punitive damages and other amounts received for personal injuries are excluded from taxable income. Punitive damages are taxable, even when they relate to a physical injury.
If the settlement is for a tax-exempt matter, such as physical injury, the settlement received should be exempt from tax.
We strongly suggest you consult with a local tax attorney or Certified Public Accountant to discuss the details of your case to determine the tax consequences. The entire award may be tax exempt.
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this web site is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed on a taxpayer under the U.S. Internal Revenue Service.
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