Neither federal law or state law considers personal injury settlements in Massachusetts to be taxable income. The reason why is that a settlement is not considered a taxable event because the settlement is strictly intended to make the victim whole. That means the settlement is intended to put the injury victim financially in the place where he or she was at the time of the accident. Sometimes, in limited circumstances, a settlement for emotional distress can be considered taxable income, but that determination really rests on the facts of a particular case.
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