If you’ve received or will receive money from a lawsuit, you’re probably wondering if that money is taxable or not. The answer to that question is that it depends. Parties may file lawsuits and win settlements under a variety of circumstances. The situation that results in you being awarded a settlement will dictate whether you’ll have to pay taxes on it.
According to the Internal Revenue Service (IRS), lawsuit settlements are generally considered as income with one exception, which is when personal injury lawsuit settlements are involved. Below we’ll highlight some examples of personal injury legal matters that may warrant you filing a personal injury lawsuit before addressing rare circumstances in which you might have to pay taxes on the settlement you receive. Just know that the best way to know if your lawsuit settlement is taxable is by speaking with a certified public accountant (CPA), especially if the settlement sum is substantial.