Are Personal Injury Settlements Taxable?

Are personal injury settlements taxable? No, the IRS has a provision that says that if you have a bodily injury and then you recover for that bodily injury, you don’t have to pay tax on it. The theory is you’re just being compensated; you’re being put back in the same position you would have been in without the wreck, and therefore, that’s not income. It’s not extra money for you; it’s just putting you back where you were. So no, you don’t have to pay taxes on a personal injury settlement.