There are, however, exceptions to this general rule: Any part of your lawsuit compensation attributed to lost wages and/or lost income is taxable. Compensation for punitive damages (non-compensatory damages to punish the tortfeasor) is taxable. Finally, any type of interest stemming from personal injury proceed investments is also taxable.
Always check with your attorney regarding what portions of your verdict or settlement are attributed to pain and suffering versus lost wages or income. Always consult with an accountant regarding the current state of the tax laws federally and in your particular jurisdiction since such laws are always subject to change. Do not rely exclusively on this opinion when you are doing your taxes!