Are personal injury settlements taxable?

One of the most common questions I am asked by my clients at the time of settlement, is whether they have to pay taxes on the money they receive for pain and suffering, for lost income, or on any of their other settlement funds.  How much of the settlement does the government get?

I’m always happy to tell them that the government does not consider a personal injury settlement to be taxable.  Whether it’s a settlement, or award after a trial from a judge or jury, you do not have to pay taxes on your claim for pain and suffering, loss of income, medical or other out of pocket expenses.

However, certain long term disability settlements might be taxable, so you need to discuss that with your lawyer when you are talking about resolving that type of claim.

You need to remember that, if you invest your Settlement funds after the case is over, any money you earn from those investments are potentially taxable just like any other investment income that you may earn, and you will have to get advice about that from your financial advisor or accountant.

If you have any other questions, please call me.