Is Structured Settlement Money Taxable?

Expert Analysis

The tax treatment depends on the original nature of your settlement. If your structured settlement arose from a personal physical injury or physical sickness claim, both the periodic payments AND the lump sum from selling are tax-free. This is one of the biggest advantages of structured settlements.

However, if your settlement arose from non-physical claims (wrongful termination, age discrimination, breach of contract), the tax situation is more complex. The original payments may have been partially taxable, and selling may trigger capital gains or ordinary income tax.

Workers' compensation structured settlements are also tax-free both as payments and when sold. Punitive damages, even if structured, are always taxable. When in doubt, consult a tax professional before selling the IRS does not provide clear guidance on every edge case, and getting it wrong can result in unexpected tax bills.