Will You Have to Pay Taxes on Your Personal Injury Settlement?

One of the questions we often hear from our personal injury clients is whether the settlement they receive will be subject to taxation. Before we provide some information, we should first note that we are not tax advisors. Therefore, we recommend consulting a financial advisor for more information. However, in most cases, we’ve found that these settlements are not taxable.

There are some exceptions, which are outlined in IRS Publication 4345 (Rev. 12-2016).


The Internal Revenue Service clearly designates which portions of a personal injury settlement are excluded from income tax. You will not be taxed on money from a personal injury settlement or jury award that compensates you for physical injuries lost wages resulting from physical injuries, or any emotional distress you suffered as a result of those injuries.

Therefore, money compensating you for economic damages like medical bills and lost income, along with non-economic damages like pain and suffering, will usually be tax-free.


There are some exceptions to these rules, and it’s important to speak with a tax advisor to determine if any such exceptions affect your situation. Depending on the decisions you’ve made when filing your taxes in previous years, there is still a chance you’ll owe the IRS some money.

For example, if you’ve already received a tax benefit at some point in the past that relates to your case, you cannot take advantage of further tax benefits. An example would be if you deducted the out-of-pocket costs of your medical care that stemmed from your accident on your previous year’s income tax return. In that case, you would need to pay taxes on your settlement.

If you earned interest on any money you recovered in your personal injury settlement, that interest is not exempt from taxation. That includes any interest you accrue from that money sitting in a bank account or investments purchased with the settlement money.

For further guidance on seeking compensation after suffering an injury, contact a knowledgeable West Virginia personal injury attorney at Prim Law Firm, PLLC. Call us at 304-201-2425 or contact us online to schedule a free initial consultation.