Here's a little more info on the taxability of personal injury claims:

For damages received pursuant to a judgment or a settlement after August 20, 1996, in taxable years ending after such date, a change in the law has reduced the confusion and controversy surrounding the excludibility from gross income of damages received on account of a personal injury or sickness. For amounts received after August 20, 1996, all damages (other than punitive damages) awarded pursuant to a judgment or a settlement are excludible from gross income if received on account of personal physical injuries or physical sickness. It is immaterial whether damages are received in one lump sum or as periodic payments.

Damages received pursuant to a judgment or a settlement are NOT excludible from gross income if the underlying claim asserts a nonphysical personal injury or sickness, such as injury to reputation. Generally, emotional distress is not treated as a physical injury or physical sickness. However, damages awarded for emotional distress are excludible to the extent of amounts actually paid for medical care attributable to emotional distress.

Zip Code: 01801