Are Structured Settlements Taxable?
Sarah Chen
CFP®
Updated May 2, 2026 • 16 min read
Key Takeaway
Most structured settlement payments are tax-free at the federal level. State tax laws vary and may affect your overall tax burden. Selling your settlement can have complex tax implications.
Federal Tax Treatment
Under current federal tax law, periodic payments from structured settlements resulting from personal physical injury or physical sickness are generally tax-free. This is one of the most significant advantages of choosing a structured settlement over a lump sum.
The tax-free status applies to the payments themselves, not to any investment earnings you might generate by investing those payments. If you invest your settlement payments, any interest, dividends, or capital gains would be taxable like any other investment income.
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