Is Your Personal Injury Settlement Taxable? What You Need to Know

Video Transcript

If you’re wondering whether a personal injury settlement is taxable, a lot of people are relieved to hear this: many settlements paid on account of personal physical injury are generally not taxable under federal law, but there are important exceptions. Punitive damages are generally taxable even in a physical injury case, and interest paid as part of a settlement or judgment can generally be taxable as well. The smartest way to think about taxes is this: it often depends on what the money is for and how the settlement is documented. That’s why good settlement paperwork matters, and it’s also why we sometimes encourage clients to speak with a qualified tax professional if taxes might be an issue. The key takeaway is don’t panic, but don’t guess. Handle it carefully and correctly.