Are Personal Injury Settlements Taxable?

A successful personal injury claim resolution often involves a cash settlement award. Regardless of the dollar amount, some of that money may be taxable, depending on how the award is structured.

For instance, compensatory damages (resulting injury) are tax free, yet punitive damages (punishment-related) are taxable. But it’s more nuanced than that—in order to become tax free, compensatory damages must be linked to a physical injury, not related emotional distress,.

And for punitive damages, the plaintiff will pay taxes on the entire settlement award, regardless of any deduction for legal fees.

Personal injury settlements tax rules can be complex—and can change quickly. You should read this for some more context: The Tax Ramifications of the Trump Tax Law on Personal Injury Settlements