Q.Are personal injury settlements taxable?
A.The answer depends on the "origin of the claim." Pursuant to IRC Section 104(a)(2), Non-punitive damages and other amounts received for personal injuries are excluded from taxable income. Punitive damages are taxable, even when they relate to a physical injury.
If the settlement is for a tax-exempt matter, such as physical injury, the settlement received should be exempt from tax.
We strongly suggest you consult with a local tax attorney or Certified Public Accountant to discuss the details of your case to determine the tax consequences. The entire award may be tax exempt.
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