Keep in mind that I am not a tax attorney, however, my understanding of the IRS position on this issue is that money paid to compensate for bodily injury is not taxable. I have never had an issue in California with the IRS trying to tax one of my client's personal injury recoveries.
To be absolutely sure, I would suggest consulting a tax attorney and/or your personal injury attorney.
Generally personal injury settlements are not taxable by the IRS. However, some portions of a recovery may be taxable. For instance, if you agree to confidentiality as a term of your deal, that could create a taxable event if it is not worded carefully. Further, if a portion of your recovery is apportioned for lost wages, that could also be taxable by the IRS. You must also seek advice about Idaho tax law. Be sure to advise your tax preparer about your settlement and follow their advice.
My responses to questions on Avvo are never intended as legal advice and must not be relied upon as legal advice. I give legal advice only in the course of an attorney-client relationship. Exchange of information through Avvo's Questions forum does not establish an attorney-client relationship with me. That relationship is established only by individual consultation and execution of a written agreement for legal services.
Current federal regulations provide that recoveries from torts that involve personal injuries are exempt from taxation.
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Mr. Lundeen is licensed to practice law in Florida and Vermont. The response herein is not legal advice and does not create an attorney/client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. Mr. Lundeen strongly advises the questioner to confer with an attorney in your state in order to ensure proper advice is received.