Are injury settlements taxable income?

I received a settlement for injuries and damages that I suffered as a passenger in a car accident, is it considered taxable income?

Logansport, IN -

Attorney Answers (1)

Thuong-Tri Nguyen

Thuong-Tri Nguyen

Business Attorney - Renton, WA
Answered

In general, for federal income tax purposes, the tax treatment of a settlement amount depends on the nature of the income being replaced by the settlement amount. For example, if the settlement amount is replacing lost wages, then the settlement amount is taxed as wages. In general, payments for physical injuries are not taxable income.

You likely should look over the settlement documents to see if they indicate how the settlement amount is being applied. If you have an attorney for your personal injury case, your attorney may be able to help you.

In many car accident cases, there is no breakdown of the settlement amount. If so, if the claimant was physically injured, the claimant likely can take the position that all the settlement amount is for physical injury and not taxable.

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