Are personal injury settlements taxable by the government?

Question

My sister recieved a large settlement for personal injury. But I didn't know if it was taxable.

Answer 1

Generally not. It depends on where the money came from. Was it an insurance company and if so who paid the premiums if it was from a disability policy? Generaly this is not taxable but any interest received is.

Answer 2

You'll need to know what type of settlement she's getting, or, more likely, what amounts of the settlement are intended to be for what purposes, because some of them are taxable and some are not. The type of settlement you receive is determined by your Final Settlement Agreement. Physical injuries or physical sickness settlements are generally non-taxable.
• If you receive a settlement for physical injuries or physical sickness and did not take an
itemized deduction for medical expenses related to this injury in prior years, the full amount is
non-taxable and generally does not need to be reported on you income tax return.
BUT
• If you receive a settlement for physical injuries or physical sickness and did deduct medical
expenses related to the injury, the tax benefit amount is taxable and should be reported as
“Other Income” on line 21 of Form 1040.
Interest, punitive damages, emotional distress or mental anguish, and employment
discrimination or injury to reputation settlements are generally taxable.
• Punitive Damages: Amounts are taxable and should be reported as “Other Income” on line
21 of Form 1040. It does not matter if punitive damages are related to a physical injury or
physical sickness.
• Emotional distress or mental anguish: Amounts are taxable to the extent that they exceed medical costs, not previously deducted, for treatment of emotional distress or mental
anguish. A statement showing the entire settlement amount less related medical costs should be attached to the return. The net taxable amount should be reported as “Other Income”on line 21 of Form 1040.

Answer 3

Some of it might be. The part that was compensation isn't. If there are punitive damages included, then that part is.