Generally, you will not need to pay any taxes on your auto accident injury settlement. There are some instances, where the money can become taxable, however. For instance, if you took an itemized deduction for medical expenses related to the injury in the prior year(s), you must include in income that portion of the settlement. Additionally, if a portion of the settlement was for lost wages, these proceeds are subject to employment tax and should be reported as wages, salaries, tips, etc.