Personal Injury Settlements: What's Your Tax Liability To IRS  

Personal injury settlements are awards for physical injury or illness injury suit may not be counted as taxable income. The thoughts behind this are that these funds are not rewarded as a monetary gain to the individual.

Punitive damages, also known as exemplary damages, may be awarded by a jury or a judge, in addition to actual damages, which compensate a plaintiff for the losses suffered due to the harm caused by the defendant. Awards for punitive damages are, however, taxable as are awards for loss of pay. 

Awards from a slip and fall accident or a wrongful death claim are therefore not taxed. Emotional distress awards are also not taxed if they are associated with such an injury. State laws vary, but usually follow the IRS rules in what are considered taxable income. Consult with your local CPA.

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