Do I have to pay taxes on money I am awarded in a personal injury lawsuit?

One of the most frequent question my clients have is, “Do I have to pay taxes on money I was awarded in a personal injury lawsuit?” Yes, but with a caveat. Money awarded in a personal injury lawsuit for compensatory damages such as pain and suffering, disability, impairment, and loss of enjoyability of life are not taxable. However, the caveat is that money awarded for economic damages-such as wage loss or loss of business opportunity-are taxable, because economic damages are income related losses.