Tax Implications of Injury Settlements

Most personal injury settlements are tax-free — but there are exceptions. Knowing what is and isn’t taxable helps you plan ahead and avoid surprises.

Generally Not Taxed

• Compensation for physical injury or illness
• Medical expenses

May Be Taxed

• Interest on settlements
• Punitive damages
• Emotional distress not linked to a physical injury

A tax advisor or lawyer can help you navigate IRS rules and keep more of your settlement.