Settlement Decisions
Tax checker · based on IRC §104

Is your settlement taxable?

Tell us what your settlement was for and what it includes. You’ll see which parts are generally tax-free, which may be taxable and what to confirm with a tax professional before you sell or file.

Med F., Settlement AnalystUpdated October 29, 2026

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Quick answer

Are structured settlement payments taxable?

Generally not, if they come from a physical injury or physical sickness claim. IRC §104(a)(2) excludes those damages from income whether you take them as a lump sum or as periodic payments, and a court-approved sale of those payments is generally treated the same way.

Punitive damages, interest, and most employment or emotional-distress-only awards are generally taxable. Confirm your settlement with a qualified tax professional.

Related: structured settlement tax guide · 26 U.S.C. §104

FAQ

Frequently asked questions

Are structured settlement payments taxable?
Payments from a physical injury or physical sickness claim are generally excluded from income under IRC §104(a)(2), including when they're paid over time. Punitive damages, interest and most employment or emotional-distress-only awards are generally taxable.
Is money from selling my structured settlement taxable?
If the payments themselves are tax-free under §104, the lump sum from a court-approved sale is generally treated the same way. Get confirmation from a tax professional for your specific settlement.
Are workers' comp settlement payments taxable?
Workers' compensation benefits are generally excluded from federal income tax under IRC §104(a)(1). They can affect Social Security disability benefits through the offset rules.
What if my settlement mixes several kinds of damages?
Each part is taxed on its own terms. The settlement agreement's allocation between physical injury, emotional distress, wages, interest and punitive damages matters, so have a tax professional review it.

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This checker gives general educational information about federal tax rules. It isn’t tax advice, and state rules differ. Talk to a qualified tax professional about your settlement before you sell payments or file a return.