Are Settlement Proceeds Taxable Income

The quick answer to this question is no. If a client comes to our firm and suffered an injury as a result of another’s negligence and that client is awarded a settlement to compensate them for a loss, the settlement is not considered taxable income. While there are exceptions to this rule, generally speaking, if a person has suffered an injury and will be paid a settlement, they do not have to report this money to the IRS . However, once the award has been placed in an interest-bearing account, the interest earned would be considered taxable income and would need to be reported as such. As always, we encourage you to follow the advice of your attorney and consult a CPA if you have more questions.