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Do They Tax Personal Injury Settlements in New York?

Seth Harris

Last modified on February 15, 2023

Taxes on SettlementsYou might wonder about the tax consequences of recovering personal injury compensation, whether in a claim or lawsuit. Understanding state and federal tax laws is crucial regardless of how you settle your case. You should know when to include your financial award while filing your taxes and what you can exempt.

Typically, personal injury settlements are not taxable. However, specific exceptions can apply, requiring you to report a portion of your settlement to the Internal Revenue Service (IRS). You should hire a knowledgeable personal injury attorney for assistance with your case and an explanation of the requirements you must meet after recovering compensation. They can guide you through each aspect of your monetary award and explain the applicable tax laws.

Here we explain the types of compensation subject to taxation in a personal injury case.

Settlement to Compensate for a Physical Injury

The purpose of compensating someone for their compensatory losses is to make them whole after an accident. Compensation should cover pain and suffering, lost wages, emotional distress, and medical treatment. New York State and the IRS typically don’t tax this type of compensation.

Below is a breakdown of each compensatory loss and the corresponding laws regarding taxes.

Physical Injury

A personal injury case must involve a physical injury or illness resulting from someone else’s actions. For example, a car accident is a common personal injury case. You might hit your head on the dashboard and get a concussion after someone runs a red light and hits you with their vehicle. That is a physical injury due to another driver’s negligence.

The settlement you receive must primarily compensate you for the physical injury you sustained in the accident due to someone’s negligent behavior. If you experience emotional distress, physical pain, and other manifestations of the injury, it is not taxable because your symptoms relate to your physical injury.

Emotional Distress

Your settlement isn’t subject to state or federal taxes if the emotional distress you endured is a direct cause or result of your physical injury from the accident. However, if you experience emotional distress after an accident without an associated physical injury, the state and IRS will likely require you to pay taxes on that portion of your settlement.

You might have to pay out of pocket to treat mental anguish or emotional distress related to your injury. If the insurance company reimburses you for those medical expenses, it likely isn’t taxable.

Lost Wages Due to an Injury

Compensatory losses include lost wages and loss of future earnings. If your settlement compensates you for your past and future lost wages due to your physical injuries, you typically will not have to pay taxes on them.

Punitive Damages

Compensatory losses and punitive damages differ significantly. Punitive damages are financial awards that punish defendants for their misconduct. It isn’t a means of compensating the accident victim for their losses. Although punitive damages are rare, understanding how they work is essential.

Punitive damages are taxable in New York. You must distinguish between this part of the financial award and the parts awarded for each compensatory loss. Identifying the amount to report on your taxes is crucial to avoid potential issues. You must report punitive damages as income on your federal tax return.

Deductions for Prior Out-of-Pocket Medical Bills

You must declare your out-of-pocket medical expenses as income while filing your taxes if you deduct them from your tax return one year and receive reimbursement the following year.

Lost Income in an Employment Case

Since a personal injury settlement can include lost wages, it is not subject to taxes. However, compensation for your lost wages is taxable if it involves an employment-related matter, such as wrongful termination or discrimination.

Taxes on Personal Injury Settlements in New YorkInterest on Settlements

Interest might accumulate on your personal injury settlement. Any interest that accrues between when the accident occurs and when you receive compensation is subject to federal and state taxes. That means you must include it as income while filing your tax return.

How a New York Personal Injury Lawyer Can Help

Although securing compensation in a personal injury case is rewarding, knowing how to handle the money is critical. To avoid future obligations or legal consequences, you must determine whether any part of your settlement is taxable. Our legal team can inform you of the basics but also recommends you consult an accountant for more specific details about your situation.

Harris Keenan & Goldfarb has fought for accident victims since 1997. We always work as a team to give our clients the attention and care they deserve. You will receive aggressive representation and a dedication to achieving satisfactory and exemplary results until the end.

If you sustained injuries in an accident that someone else caused, call us at 800-PAIN-LAW or dial #PAIN for a case consultation today.

Over $500 Million in Verdicts and Settlements

Our track record showcases over $500 million won for our clients. Each victory underlines our commitment to justice and client care. Explore our impact, case by case.



A Brooklyn jury awarded Mr. Vargas $17.5 million for the City of New York’s violation of his civil rights for failing to provide him medical care while in custody. The jury found that the police officers involved failed to provide the necessary medical treatment and awarded $17.5 million to Mr. Vargas.



Harris Keenan & Goldfarb partners Seth Harris and Sheri Holland obtained a $4,730,398.00 jury verdict on behalf of our client who tripped and fell at a private apartment building in the Bronx, suffering a broken foot that developed a very painful, permanent neurological condition called Reflex Sympathetic Dystrophy (“RSD”).



A Bronx jury awarded John Doe over $12 million for an accident on a construction site. John Doe was working when a piece of scaffold weighing 35 pounds fell, striking John Doe in the lower back. John Doe suffered a herniated disc requiring surgical removal of a portion of the disc and permanent nerve damage.



A Bronx jury awarded $10.5 million to the mother of Malcolm Ferguson, who was wrongfully shot and killed by the New York City Police Department. The police officer, Louis Rivera, also a defendant in the case, was found to have used excessive force in violation of Malcolm Ferguson’s civil rights as protected under the United States Constitution.



A Bronx jury awarded plaintiff William Cardoza $4 million for injuries caused by the use of excessive force during an arrest. During the arrest, Mr. Cardoza was pepper-sprayed and repeatedly hit with a police nightstick. As a result, Mr. Cardoza sustained injuries to his hand and finger.



The firm’s client, a 33-year-old teacher’s assistant, was scalded by an espresso machine that exploded while the defendant’s employee was demonstrating how the machine worked. The client was a customer at the defendant’s coffee shop on the date of the accident and suffered first-degree burns to her right (dominant) hand.



The firm represented the mother- decedent and her infant son. During the decedent’s admission to the defendant hospital, the defendant dispensed anesthesia during an epidural to the decedent in an inadequate manner. The mother-decedent suffered personal injuries and wrongful death due to the defendant’s failure to properly administer epidural anesthesia.



Mr.Brennan fell from approximately 25 feet while working on a construction project. He suffered a shattered bone in his right leg requiring surgery and hardware placement. Mr. Brennan also suffered two fractures in his facial bones, and a dislocated finger requiring surgical repair.



The firm’s client was a child with cerebral palsy who was injured as a result of medical malpractice. The firm’s clients claimed improper management of pregnancy, labor, and delivery resulting in brain damage, and received a Brooklyn personal injury settlement.



The firm’s client, a 63-year-old mentally incompetent man, slipped and fell in his own urine while attempting to walk to the bathroom at the defendant’s senior citizen home. The client fractured his hip and as a result is confined to a wheelchair for the rest of his life. The client claimed that the staff of the home failed to properly care for him, and the jury awarded $1,677,835.



The firm’s client, a 47-year-old male, slipped and fell on a public sidewalk in the Bronx. It had snowed four to five days prior to the date of the accident, and the sidewalk was covered with ice. The client suffered a lumbar fracture and a herniated disc. The jury found the city liable and awarded the client a $2,995,000 personal injury settlement in the Bronx.



A Bronx jury awarded plaintiff Luis Molina $2.61 million for injuries sustained when he fell down a subway station stairway. Mr. Molina was caused to slip and fall as a result of a plastic bag that had blown onto the steps from a street opening. As a result of the fall, Mr. Molina suffered a herniated disc and a tear of his right shoulder’s rotator cuff. The jury found that the NYC Transit Authority was liable for the accident.



A Bronx jury awarded Ms. Colon $2.25 million for a trip and fall accident. Ms. Colon was caused to fall when she moved to the right to allow another pedestrian to pass, and her foot rolled to the outside due to the sidewalk being unlevel with the adjoining grass. The jury found the defendant liable and awarded Ms. Colon $2,253,714.00 for her pain and suffering.



A Brooklyn jury awarded Arvella Floyd $1.9 million for a fractured wrist which required multiple surgeries, including an open-reduction internal fixation and a carpal tunnel release. Ms. Floyd was injured when the hot water knob of the shower fell off after numerous complaints to the superintendent, and scalding water spewed toward her, causing her to
fall and break her wrist.



A Bronx jury awarded plaintiff Juanita Young $1,350,000 for injuries caused by the use of excessive force during an arrest. During the arrest, Ms. Young, who is legally blind, was handcuffed from behind, with her children watching, and taken to the top of the stairs to exit the building. The officer proceeded to push her down the stairs multiple times.

What our clients have to say

I am not a client. Just a commuter. What is your advertisement? Fire your marketing manager asap. “Yo, pain law, yo” what is that? 1 start for horrible marketing. Sorry. Job you do is serious and isn’t a joke.
david Santiagodavid Santiago
18:05 21 Mar 24
Maria RoqueMaria Roque
20:49 15 Mar 24
Excellent person, very Professional, they assist you in any language, your call is always answered. I recommend you for any case of support you have, your refund is satisfactory. and fast
14:09 02 Mar 24
I am completely satisfied, and recommend Harris Keenan & Goldfarb as Attorneys to represent anyone. Their care for me physically, and overall helped me stay strong in spite of my injuries. Always available to answer questions, and inform.They got me Justice, and achieved a substantial outcome for my case.I am very impressed, and thankful for their outstanding performance on my behalf.I am very pleased, and significantly satisfied with their representation.‐-Sherylon Wilkins
Robert LennonRobert Lennon
15:26 21 Feb 24
Patient and diligence is how I describe the effort of HKG the work was thorough, honest and fair, I have no complaints. Special thanks to attorney Blake and his paralegal Thierry.
Gene Matos (fanboye)Gene Matos (fanboye)
18:48 15 Jan 24
I first crossed paths with Seth Harris when serving jury duty many years ago. He was so professional and personable, that when my mom was seeking legal counsel for medical malpractice, I told her she had to reach out to his firm. We had meetings with a few different firms, but Harris Keenan & Goldfarb was the only firm that did not try to get us to sign paperwork before even meeting. They took the time to listen and understand our situation before we signed anything, and they were transparent and responsive the whole time. I would like to give special thanks to Samantha Walton, Marla Stein, Val Wallace and Seth Harris for helping my mom through this tough time. They were honest and upfront, and even though Seth Harris wasn't personally on the case, he took the time to meet with us and give us his thoughts on it.
Solange IsaacSolange Isaac
17:52 08 Jan 24
I am pleased with the services provided by Ms Sheri on my case. The team at Harris, Keenan, & Goldfarb were very nice and explained everything to me. Everything that I had questions on they answered without frustration and were prompt and knowledgeable.6 years ago I had a slip and fall accident at my employers place of business. I reached out to them because I knew that I was being wrongfully treated. They took care of the case, restored my self confidence, and brought so much peace to my problem riddled life.I can recommend without a shadow of a doubt the services of Harris, Keenan & Goldfarb to anyone who is in need of someone who will have your back!
Brittany DempseyBrittany Dempsey
16:02 08 Jan 24
My mother had an accident with her ankle back in 2019. I immediately contacted Harris, Keenan & Goldfarb on the day of the accident. They were extremely prompt and helpful. They attended to my mother's case beautifully and she's been recovering well. I'd like to thank you for being so diligent, kind and above all professional. I'd recommend this law firm to anyone who are injured and in need of legal assistance. My mother, Andrea, and I thank you for everything.
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Frequently Asked Questions

Common questions that prospective clients have about personal injury claims include:

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