Many of my clients are understandably concerned about the tax consequences of a personal injury settlement/award. Generally, monies you receive as compensation for your personal injuries are not considered taxable income. The reason for this is that by receiving monetary compensation for your personal injuries, you are considered to be put back in the position you were prior to the accident that caused your injuries. The tax code does not consider you to have realized a financial gain from your receipt of personal injury compensation.
Please note that punitive damages are considered to be taxable income.