As a general rule, the proceeds received from most personal injury claims are not taxable under either federal or state law. It does not matter whether you settled the case before or after filing a personal injury lawsuit in court.
In any Personal Injury lawsuit, you will either have a settlement or a verdict. A settlement is an agreement between the parties to “settle” the case and avoid taking the case to court. A verdict is when a judge or a jury is presented with evidence and will decide the case. For example, how much money one party owes the other. But the question is, do you have to pay taxes on your settlement or verdict?