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Are Mass Tort Settlements Taxable?

Simply put, the answer is complicated and unclear. Every situation is unique, but depending on the claim’s nature and other variables, you may be required to pay taxes on your settlement award.

Because the IRS has ruled that lawsuit settlements are taxable in certain specific cases, you may need to seek the guidance of a tax professional to discern whether your particular case is taxable.

In general, income is taxable, including any money you receive as compensation for lost wages, personal injury, or property damage. If you are awarded a lump sum in your settlement, that amount may be considered taxable income.

However, if your settlement is structured as a series of periodic payments, you may only be taxed on the amount you receive in each payment instead of the total sum.

Exceptional cases

There are some exceptions to this rule. If the money you receive is considered punitive damages, it may not be taxable.

Additionally, suppose your case is settled before it goes to trial. In that case, any amount you receive for pain and suffering may not be considered taxable income, as it would be if a jury awarded you that sum.

If you have any questions about whether your mass tort settlement is taxable, you can speak to a tax professional or an attorney at, familiar with the laws and payments.

Types of Lawsuit Settlements

A decision is a formal court resolution of a dispute in which the court can order one party to pay money damages to another.

Settlement refers to a compromise between the parties. Payments are distinct from judicial adjudication and other formal hearings because they are not binding. However, judgments and settlements for tax purposes are treated similarly.

Almost always, any type of compensation is taxable, including:

  • Interest in monetary awards
  • Most payments for lost wages or lost profits
  • Damages for patent or copyright infringement or breach of contract
  • Money received for settlement of pension rights.


Most people’s attention during a lawsuit is focused on the outcome and the amount of the awarded money. People may not think about taxes while anticipating a recovery because they’re relieved that they won’t have to pay them.

You’ve already completed many tasks, including undergoing distressing rehabilitation and financial setbacks. In addition, you and your lawyer have worked hard to receive compensation that covers the total cost of your injuries.

When recovering from an accident, the last thing you want to do is deal with the IRS. The objective of this article is for you to keep as much of your settlement amount as possible to recuperate faster.

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