According to the Internal Revenue Service, awards and settlements received in compensation for a personal injury are not considered income and are not subject to tax. There are, however, some exceptions:
If you already deducted medical expenses and then later obtained a settlement or award that included medical expenses, you will likely be expected to repay the amount of your deduction.
If you received punitive damages, that portion of your award or settlement can be taxed as it is not directly related to your injury.