As stated directly from the IRS, referring to Internal Revenue Code §104(a)(2) and §130(c), it says and clarifies that any money received due to a personal physical injury through a qualified and approved structured settlement annuity is exempt from taxation. However, this full amount must be acquired through periodic payments as if received in a lump sum payment with a sell annuity option; the amount is generally subject to taxation upon the distribution. It may sound a little complicated, but this is how personal injury annuities work when you want to sell. Source Tip: Before agreeing to sell your annuity for a lump-sum payment, consult with a CPA or qualified tax advisor to see if you will be subject to taxes, and if so, how much. Don't make the mistake of skipping this step as it could mean thousands or even tens of thousands of dollars to you.