A: No you do not. In New York, compensation for your injuries is tax free. You will receive notification from the insurance company that paid you compensation with documentation about your settlement. You need to give that to your accountant. However, there are no taxes to be paid on your settlement. When you invest those monies into taxable investments, then any profit or gain you achieve is obviously taxable. In a death case, an award for pain and suffering is generally taxable to the estate. In some instances there are legal ways to allocate the monies to the wrongful death cause of action (which is not taxable to the estate) rather than the pain and suffering cause of action. It's bad enough being injured, and then having to bring a lawsuit to obtain proper compensation and payments for your disabilities. Can you imagine the impact it would have if you then had to pay income taxes on those monies? Luckily, the government realized that injury settlements are not earned income. Rather, they compensate an injured victim for the pain, suffering, and disabilities they suffered at the hands of another's carelessness.