You Got a Personal Injury Settlement. Does the IRS Feel Your Pain?

You Got a Personal Injury Settlement. Does the IRS Feel Your Pain?
When it comes to legal settlements, there are careful and creative ways to structure your settlement and payout so as to maximize the amount that will be exempt from taxation. iQoncept/Shutterstock
Rodd Mann
Updated:
0:00

You got a check from a legal settlement—perhaps from a personal injury lawsuit, a wrongful termination case, or a vehicle accident. You got a settlement from your insurance company, or an exit check from your former employer. Are those payouts taxable?

The general rule regarding taxability of amounts received from the settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61. This section states that all income is taxable regardless of its source, unless exempted by another section of the code.
Rodd Mann
Rodd Mann
Author
Rodd Mann writes about carving out a creative and unique new career in a changing world. His own career has taken him all over the world, working in accounting, finance, materials, logistics and manufacturing operations. Author, teacher, writer, consultant, Rodd has worked in many high-tech roles.