According to the Internal Revenue Service, personal injury awards or settlements are not considered income and are, therefore, not taxable. However, if you deduct medical expenses related to your injury in one year and receive a settlement the following year, the IRS will want the amount you deducted returned to them. Also, if you obtained punitive damages—a type of damage that is sometimes awarded beyond the amount of expenses and non-economic impacts to punish the defendant for particularly reckless behavior—you will likely have to pay taxes on that portion of the award.