Are Personal Injury Settlements Taxable in Massachusetts?
No. Generally speaking, under Section 104 of the Internal Revenue Code, monies received as settlement for personal injuries are not considered taxable income. The rationale behind this rule is that you are not realizing a taxable event because the settlement money is intended to put you in the position you were in prior to the Massachusetts accident. Therefore, you have not really gained anything financially.
Be aware that punitive damages under the Code are taxable, as are damages received on account of emotional distress injuries, but compensation for pure physical injuries are not taxable.