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Will my personal injury award be taxed?

Generally, no. Under section 104 of the Internal Revenue Code, a taxpayer’s gross income does not include any damages that are received on account of personal physical injuries or sickness. It does not matter whether the damages have been obtained by a court order or through a negotiated settlement. It also does not matter whether the damages are paid in a lump sum or in accordance with a structured settlement that provides for periodic payments (although in a structured settlement, interest on the settlement will also not be taxed, giving structured settlements an extra benefit). Therefore, any monetary payments to a plaintiff for the plaintiff’s physical injuries are not taxable to the plaintiff. However, you should be sure to mention these proceeds to your accountant at the end of the year in which you receive them. The accountant may have additional information that affects your tax liability.

Posted in: Personal Injury