Are Personal Injury Lawsuit Proceeds Taxable?

If you’ve suffered harm due to someone else’s negligence or intentional wrongful act, you can file a personal injury claim in Louisiana or Texas to recover compensation for your losses. After successful negotiations with the insurance company, you may receive monetary damages through a settlement check. You may also opt to file a civil lawsuit against the at-fault party, win the case, and get a favorable verdict that compels the insurance company to pay compensation.

When you receive compensation from an out-of-court settlement or a personal injury lawsuit, you may wonder, “Are personal injury lawsuit proceeds taxable?” After all, you may receive a large amount from a settlement and be curious whether or not the federal or state government may take a cut.

At Morris & Dewett Injury Lawyers, our lawyers can help you understand if your personal injury settlement is taxable and the amount of money you may have to part with. Our personal injury lawyers will provide legal guidance once you receive your settlement check.

Are Personal Injury Lawsuit Proceeds Taxable at the Federal Level?

When it comes to federal laws and the Internal Revenue Service (IRS), settlements and awards from personal injury cases are not taxable. This means the IRS won’t take a portion of your compensation as taxes since the funds are meant to compensate you for losses you’ve endured. This applies to both economic and non-economic damages, such as medical bills, lost wages, and pain and suffering.

However, it’s important to point out that compensation for emotional distress, pain and suffering, humiliation, and mental anguish is taxable if no physical injury exists. For example, if a dog charged at you, causing you to develop PTSD or anxiety, but you weren’t physically harmed, such damages would be taxable. This may also apply if you receive compensation after witnessing a tragic event, such as a motorcycle accident involving an 18-wheeler truck.

The IRS doesn’t tax economic damages since you are recouping lost funds. The agency also doesn’t tax non-economic damages since they are meant to make you whole for subjective non-monetary losses such as emotional trauma after a tragic accident. In addition, the IRS doesn’t tax compensation for physical illness.

Many personal injury cases are generally not taxable, including:

Here’s a breakdown of taxable and non-taxable proceeds at the federal level:

Physical injury or illness 
Emotional distress related to physical illness or injury 
Lost wages related to physical illness or injury 
Emotional distress unrelated to physical illness or injury 
Interest on judgments and settlements 
Punitive damages 

The federal tax code is riddled with many exceptions as well as gray areas, making it notoriously complicated. The best way to prepare for possible tax repercussions after securing a personal injury settlement or award in Louisiana or Texas is to consult your personal injury lawyer. At Morris & Dewett Injury Lawyers, our legal team is well-versed in personal injury law and is ready to consult tax experts, including certified public accountants, to ensure you accurately file any required taxes.

Are Punitive Damages Taxable?

Punitive damages aren’t compensatory damages. They are intended to punish defendants for their outrageous, reckless actions rather than compensate victims. Although rarely awarded, punitive damages are taxable. Since they aren’t meant to make you “whole” after an accident, the IRS requires victims to report them as “Other Income,” whether or not they are injury- or illness-related.

The only exception is in the event of a wrongful death action. Punitive damages in such cases are not taxable.

Interest on judgments and settlements is also taxable. When filing taxes, interest should be reported as interest income.

Do the States of Texas and Louisiana Tax Personal Injury Settlements?

Some states charge income taxes when you receive personal injury settlements after a successful insurance claim or court case. These are separate from federal taxes collected by the IRS and are subject to different state laws.

What about Texas and Louisiana? Are personal injury lawsuit proceeds taxable in these states? Plaintiffs who receive compensation in either state don’t have to worry about whether these states will take a portion of their personal injury settlement. The compensation you receive for your car accident settlement won’t be taxed at the state level.

Get a Larger Personal Injury Settlement With the Help of Our Attorneys

The best way to ensure you comply with the federal tax code is by talking to an experienced lawyer. Tax rules are complicated, filled with accounting and legal terms that may be hard to comprehend. Still, the IRS imposes harsh consequences for tax noncompliance. At Morris & Dewett Injury Lawyers, our legal team can help you maximize your settlement and answer any questions you have about your tax obligations.

Call (318) 221-1508 now to book your free case evaluation. Let us help you maximize your settlement.


  1. About IRS. Internal Revenue Service. Accessed on August 14, 2023.
  2. Compensation for Injuries or Sickness. Office of the Law Revision Counsel. Accessed on August 14, 2023.
  3. Tax Implications of Settlements and Judgments. Internal Revenue Service. Accessed on August 14, 2023.

Morris & Dewett provides this information to the public for general education and interest. The firm does not represent clients in every topic discussed in answers to frequent questions. The information is curated and produced based on questions commonly asked or search terms commonly used. Every effort is made to provide accurate information. Do not make any decision solely based on the information provided, please seek relevant counsel for each topic area. Consult an attorney before making any legal decision, consult a doctor before making any medical decision, and consult a financial advisor before making any fiscal decision. Information provided is not legal advice. If you have any legal needs, please do not hesitate to contact us. We are pleased to assist you.

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