# Tax implications of personal injury settlements

> Whether mass tort settlements are taxable and what tax rules apply to different types of compensation.

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**Last updated:** 2026-06-11

Under Internal Revenue Code Section 104, compensatory damages for physical injuries or physical sickness are generally excluded from gross income and are not taxable as income.

Punitive damages, however, are always taxable. Interest earned on settlement proceeds before distribution is also taxable. If your settlement allocates part of the payment to lost wages or emotional distress (without physical manifestation), those portions may be taxable.

Tax treatment can be complex, especially in mass tort settlements that compensate for medical monitoring alone or property damage. Consult a tax professional or CPA about your specific settlement terms before filing.

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*Educational guide from DrugsMonitor.com. Not legal advice.*