A. In the United States, typically, the money awarded in a personal injury settlement is not taxable. The official statement from the Internal Revenue Service regarding the tax-ability of personal injury settlements is as follows:
“If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.”
However, there are exceptions. A reimbursement for medical care generally is not taxable. However, it may reduce your medical expense deduction. If you receive reimbursement for an expense you deducted in an earlier year, itemized deductions that were later reimbursed by the settlement, then that amount would be taxable.
This brief general discussion of tax issues is not meant to be legal advice. If you have questions, consult a tax attorney.