January 10, 2022
When any physical injury victim recovers money either by settlement or by verdict, the question of the tax treatment of said recovery arises. As long as it is compensation for personal physical injuries it is tax-free under Section 104(a)(2) of the Internal Revenue Code.1 Section 104(a)(2) of the Internal Revenue Code states that “gross income does not include . . . the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness.”2 Section 104(a)(2) gives the personal injury victim two different financial options for their recovery, lump sum or periodic payments.3 For more information, read this excerpt from my book ‘The Art of Settlement‘.
