Two years ago I was in an auto accident that was no fault of my own and was hurt pretty badly in it. Fast forward to now and it's time for me to finally receive my settlement. What I need to know is if I need to set aside any money to pay income tax on this settlement when it comes to tax time next year. I was under the impression that insurance settlements were tax free, but after doing a little reading on the subject, I'm more confused about it then when I started. Here are the facts, I was the passenger in a single vehicle accident, I was injured in the accident with permanent injuries, the driver's insurance company is the one paying out the settlement, this did not go to court before a settlement was reached. I can't think of any other key details that would effect the outcome of the tax-ability of my settlement.
Answer by Judge Julie
Casualty settlements for injuries ARE NOT TAXABLE as income!
Answer by Bash Limpbutt's Oozing Cyst©
Settlements for physical injury or illness are not taxable. If any portion was flagged for accrued interest or punitive damages, those portions would be taxable as ordinary income.
There are a couple of clue-less regular contributors here who usually state that "pain and suffering" is taxable. They are wrong.
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