Are lawsuit settlements taxable?

Any individual looking at settlement of a personal injury claim would be well advised to seek review by their own tax professionals to determine whether or not their personal situation merits additional consideration.

What should be understood first is that lawsuit settlements involve numerous different areas. They can involve economic damages like past lost wages and future earning capacity. They can involve reimbursement for medical expenses, both past and into the future. As a general rule, personal injury settlements are not taxable. However, there are certain exceptions.

One exception is if an individual has claimed, as a deduction, medical expenses that are now being reimbursed in the personal injury settlement; then, those medical expense reimbursements can, in fact, be taxable. In addition, interest payments, if they are part of a personal injury settlement, can also be taxable.

Are class action lawsuit settlements taxable?

Oftentimes, the nature of a class action suit determines if the lawsuit settlement can be taxable. Lawsuit settlement proceeds are taxable in situations where the lawsuit is not involved with physical harm, discrimination of any kind, loss of income, or devaluation of an investment.