Are Personal Injury Settlements Taxable in Illinois?

If you’ve recently received a settlement from a personal injury case in Illinois, you might be asking, “are settlements taxable?” It’s a common question that many victims and their families ponder. The answer, however, is not as straightforward as you might think.

Tax-Free Personal Injury Settlements

In most cases, personal injury settlements are not taxable. The IRS does not consider these settlements as gross income, but rather as compensation for a loss. Here’s a list of what’s typically tax-free:

  • Compensation for physical injury or physical sickness
  • Compensation for pain, suffering, and/or disfigurement (non-economic damages)
  • Compensation for emotional distress due to physical injury or sickness
  • Compensation for medical expenses

For instance, if you were involved in a car accident and received a settlement for your injuries and medical bills, this would generally be tax-free.

do you pay taxes on personal injury settlements in illinois?

Taxable Personal Injury Settlements

However, there are exceptions. Certain parts of your settlement may be taxable under Illinois law. For example, if your settlement includes punitive damages, these are typically taxable. Punitive damages are not compensation for a loss, but rather a punishment for the defendant’s reckless or malicious actions. For instance, if you were involved in a truck accident and the trucking company was found to be grossly negligent, any punitive damages awarded would be taxable.

Similarly, if your settlement includes compensation for lost wages, this portion is also taxable. Lost wages are considered income that you would have earned (and paid taxes on) if not for the injury.

Structured Settlements

Another factor to consider is how you choose to receive your settlement. Victims who obtain large settlements sometimes opt for a structured settlement agreement, where the amount is paid out over time rather than in a lump sum. One of the benefits of structured settlements is that they are not taxable under certain circumstances.

Seek Professional Advice

Given the complexity of tax laws, it’s always advisable to consult with a certified public accountant (CPA) if you have questions about your personal injury settlement. A CPA can guide you through the process and help you understand what parts of your settlement may be taxable.

Remember, if you or someone you know has been the victim of an injury, our website can help with financial recovery. We specialize in a wide range of personal injury cases, from medical malpractice to wrongful death. Don’t hesitate to fill out the contact form at the end of this article for a free case evaluation.

While this article provides a general overview of whether personal injury settlements are taxable in Illinois, it’s important to note that every case is unique. Always seek professional advice for your specific situation.


In conclusion, while most personal injury settlements are not taxable, there are exceptions. Understanding these can help you plan better and avoid any surprises come tax season. If you’re unsure, always seek professional advice. And remember, if you or a loved one has been injured, we’re here to help. Fill out our contact form for a free case evaluation and let us assist you on your road to recovery.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial/tax advice. For personalized legal advice regarding your injury case, please consult with a qualified attorney.


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