Taxes on Personal Injury Awards
A Birmingham, Alabama client called my office yesterday. She received a $20,000 settlement in a car accident personal injury case from last year. She wanted to know if she had to pay taxes on this amount. The general rule is awards of money in compensation for personal injuries or sickness are not subject to federal income taxation; unless those compensatory damage awards are in the form of punitive damages. Punitive damages are generally taxable and are awarded not as compensation for your lose or for pain and suffering. Punitive damages are generally awarded to punish someone for wrongdoing.