Are Personal Injury or Workers’ Comp Settlements Taxable? | LLDDC Law | Urbandale, Iowa
7016408197 • January 20, 2026
Is a Personal Injury or Workers’ Compensation Settlement Taxable?
Q: If a worker injures an arm or leg, are they entitled to benefits for losing their job?
If you’ve been injured and received a settlement, you may be wondering:
“Will I have to pay taxes on the money I received?”
The General Rule: Settlements Are Not Taxable
In most cases, personal injury and workers’ compensation settlements are not considered taxable income under federal law. That means you typically won’t owe income tax on money received for:
- Medical bills
- Pain and suffering
- Lost wages (if part of a personal injury claim)
- Permanent disability or impairment
The reasoning is simple: these payments are not “earned” like wages. The payment is meant to compensate you for harm, not to provide income.
When to Be Cautious
While most of your settlement is likely non-taxable, there are exceptions:
- Interest on the settlement may be taxable.
- Punitive damages (rare in Iowa injury cases) are usually taxable.
Always Get Professional Advice
Everyone’s situation is different. You should consult with:
- A qualified tax professional or accountant
- The Internal Revenue Service (IRS) directly
- Or, speak to your attorney to help clarify what portion (if any) of your settlement might be taxable
Injured and unsure about your legal or tax rights?
We can help you understand the full picture. Contact LLDDC Law, your experienced personal injury and workers' compensation attorneys in Urbandale, for a free consultation.
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