Without getting too bogged down in regulatory language, we can briefly turn to the US code specifically related to the Internal Revenue Service (IRS) regulations addressing the taxability of settlements. In 26 C.F.R 1, we can see that damages received by an injury victim for personal physical injuries are excluded from taxes. This includes payments made for economic damages such as medical bills as well as emotional distress damages attributable to the physical injuries.
The IRS specifically says that it does not matter whether or not the injury victim is awarded compensation through an insurance settlement or as a result of a jury verdict; they will not be required to pay taxes on these damages.
Additionally, any compensation a person receives as a result of vehicle damage in a car accident will not be taxable. This is true for the costs of repairs as well as any reimbursement that a person receives for a rental vehicle that they need while their vehicle is in the shop.