Robert I. Feinberg Personal Injury Law Blog on Lawyers.com

Clients are forever amazed that the Internal Revenue Code exempts from the definition of income personal injury awards.  Believe it or not, thus has ever been the case.  We are not accustomed to benefits such as this flowing to our personal injury clients.

This great advantage somehow eludes many experienced lawyers.  I am often called by other attorneys who ask how “A Release Of All Claims” should read.  When I get to their point, I learn that they are concerned that some amount may be attributed to loss of earnings and thereby, in this erroneous view, subject their clients to tax.  As George H.W. Bush once said, “Read my lips, no new taxes.” Well, there are no taxes to be paid on personal injury awards regardless of whether some amount relates to a loss of earning capacity.

To be sure, in some tort cases Congress has altered this, such as with punitive damages and non-physical injuries i.e. where there has been gender and age discrimination.  However, in the vast majority of tort cases, the exemption from income remains.  So may it ever be so.