victim is allowed to invest money that they receive from their personal injury claim, but this might impact their taxes.
For instance, for victims who are younger than 21-years-old, the money that these victims receive themselves or that someone receives on behalf of the victim for a physical or mental injury is exempt from taxes. In addition, capital gains and investment income from this award are also typically exempt from taxes.
However, for victims who are over 21, they usually must pay taxes on investment income from their personal injury award. Say, for example, that you received $10,000 in non-pecuniary damages for pain and suffering. If you invest this money in stocks that earn 10 percent this year, then you must pay taxes on the $1,000 earned by your investment.
On the other hand, you might choose to receive your personal injury award in a structured annuity. In this case, you would not have to pay taxes on any of your settlement – even the interest that the money gains before you receive it in periodic payments.