Paying Taxes on a Personal Injury Settlement

by Christopher
(Corvallis, OR)

My wife was hit by a car in California. She received a settlement for pain & suffering. I've read online that she does not need to pay income taxes on this money. I am assuming this applies to federal law. I could find nothing concerning the Oregon state law.

Are we required to pay taxes on the income at the state level? Do you think we need to see an Oregon attorney or CPA?

Visitor Question:
Disclaimer: Information provided in our response is NOT formal legal advice. It is generic legal information based on the very limited information provided. Under no circumstances should the information in our response, or anywhere else on this site be relied upon when deciding the proper course of a legal matter. Our response does NOT create an attorney-client relationship. Always get a formal case review from a licensed attorney in your area.

ANSWER for "Paying Taxes on a Personal Injury Settlement":

The basic answer is "no," personal injury settlements are not taxable, but in order to really pass this test, the following criterion must be met:

You must be physically injured and the injury must be the result of a wrongful action, not a breach of contract, unlawful detainer or wrongful termination, for example. Provided the settlement comes from this type of physical injury, it is more than likely untaxable.

For further information on this topic, check IRC Section 104(a)(2). The reason is that the IRS considers personal injury proceeds to be compensation for injuries not "gains" per se which are taxable.

The above is general information. Laws change frequently, and across jurisdictions. You should get a personalized case evaluation from an attorney licensed in your state. Find a local attorney to give you a free case review here, or call (888) 647-2490.

Best of luck,

Judge Calisi

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