Does the IRS tax a personal injury insurance settlement?

Answer by  Richard88 (391)

Yes. Settlement amounts that cover actual damages, such as medical expenses, destroyed property, and legal expenses are not taxed. Settlement amounts above direct expenses, such as money paid because the defendant wants to avoid punitive damages, would be taxable. Generally, compensation for losses isn't taxable, gains beyond losses are.

Answer by  Kishore (17)

No, IRS does not tax a personal injury insurance settlement. Insurance settlement amount is not an income according IRS. Personal injury settlement is paid only as an personal loss occured due to the injury. Also you do not find such settlement defined as income according to IRS.

Answer by  Paul99 (47)

The IRS does not tax personal injury settlement. Personal injury settlements do not meet the definition of "income" under the Internal Revenue Code. Awards for Discrimination and other losses are taxable

Answer by  Srr (105)

Personal injury settlements are generally not taxable with a couple of exceptions. Medical expenses must be reported if you deducted these expenses in a previous year. If there are punitive damages, they should be reported as "Other Income. " Any interest received is also taxable as "Interest Income. "

Answer by  labinc02 (19)

Only punitive damages are considered taxable. Punitive damages must be reported on the other income line of the 1040 in the year that settlement is received. If the damages are classified as compensatory the settlement is 100% tax free.