Tennessee Injury Law Center
I am a Tennessean. I was received some broken bones in a car wreck earlier this year. I spent a couple days in the hospital and missed six weeks of work. The case was just settled and I received a check for a significant amount of money. Do I have to pay income taxes on the money I received?
No, you do not have to pay federal income tax on the money you received
As of today (and for many, many years) there is a special federal law that permits people who receive money in personal injury cases where there has been physical harm to exclude the monies received in a settlement or lawsuit from their income for federal income tax purposes. You do not need to report it to the government and you do not need to report it.
Note that the limitation only applies to physical injuries. If your injuries were purely emotional, or if you settled an employment case or other type of lawsuit, be sure to ask your attorney and your tax adviser about the tax consequences of any settlement or other monetary payment.
Finally, there is no state income tax in Tennessee, so a personal injury settlement for physical injuries does not give rise to a taxable event in Tennessee.