It is important to understand whether or not your medical malpractice lawsuit settlement is taxable. While the majority of your settlement has tax exemption, certain portions may be taxable. In such a case, you should consult a professional for guidance. To determine if your particular settlement is taxable, check with your state's tax code. A medical malpractice attorney will be able to guide you through the process. First, consider whether you will be receiving compensation for your emotional distress. If you receive an award for pain and suffering, the amount will be taxable. Incurred medical expenses, on the other hand, would be tax-free. Discuss your options with your medical malpractice lawyer to ensure that you receive the most tax-friendly settlement.