Tax Implications of Injury Settlements
Most personal injury settlements are tax-free — but there are exceptions. Knowing what is and isn’t taxable helps you plan ahead and avoid surprises.
Generally Not Taxed
- Compensation for physical injury or illness
- Medical expenses
May Be Taxed
- Interest on settlements
- Punitive damages
- Emotional distress not linked to a physical injury
A tax advisor or lawyer can help you navigate IRS rules and keep more of your settlement.
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