Do I have to pay taxes on my Personal Injury Settlement?

I am often asked in the month of April if you have to pay taxes on your personal injury settlement. The Answer generally no. You do not have to pay taxes on an injury recovery whether the monies are recovered from a settlement or from litigation. This is typically true for the Federal Government and the State of Arizona.

There can be exceptions to this such as prejudgment interest, emotional distress recoveries, or punitive damages. It may also make a difference whether your claim was brought in negligence or some other cause of action. This is another reason why you should consult with a lawyer if you are injured in a car accident, or consult with an accountant if you have tax questions.

For further information see the following: https://www.irs.gov/pub/irs-pdf/p4345.pdf and https://www.irs.gov/