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Personal Injury

Are Personal Injury Settlements Taxable?

By September 19, 2020April 22nd, 2021No Comments

If you’ve been involved in an incident that caused some sort of personal injury, you might be considering options for further action or in an effort to recover damages or compensation related to those injuries. 

Before you do, it’s important to consider the broader tax implications of any settlement you might receive at the end of a proceeding. Understanding the actual, realized value of what you could receive will help guide you in deciding if further action is actually in your best financial interest.

The General Rule About Settlements

In most claims, the proceeds from a settlement are not taxable under state or federal law. Federal law, specifically, excludes these types of damages from being counted under gross income. 

However, this rule only applies to settlements where physical injury is involved. Claims for things like emotional distress are taxable income in the event of any payout. 

Other Exceptions to Note 

If your injuries are related to a breach of contract and that breach is the basis of a lawsuit, then damages you win could be taxed. Along with that, interest on any judgment is also taxable. What this means is that if there’s any time lapsed between a verdict and payment, the court will generally award interest on that time and that interest is taxable. This could happen in the event of an appeal or other general delay in the finality of the proceeding. 


If you’re considering a personal injury lawsuit, it’s highly important that you speak with a qualified law firm that will listen to your perspective and your needs. At Garretson & Holcomb, LLC, we’ll do just that. Call us today at (513) 863-6600 to learn more about how we’ve helped West Chester, Mason and Hamilton personal injury clients work through their personal injury situations and decide which courses of action are best for them.

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