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Is Compensation for Physical Injury Taxable

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.

Punitive damages are always taxable. If you have a punitive damages claim, your lawyer will always ask the judge or jury to separate its verdict into compensatory damages and punitive damages. That ensures that you can prove to the IRS that part of the verdict was for compensatory damages, which are not taxable.

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