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Hi and welcome to JA. Ray here to help you today
In NJ here as a general rule, the proceeds received from most personal injury claims are not taxable under either federal or state law. It does not matter whether you settled the case before or after filing a lawsuit in court. It doesn’t matter if you went to trial and won a verdict. Neither the federal government (the IRS), nor your state-NJ, can tax you on the settlement or verdict proceeds in most personal injury claims. Federal tax law, for one, excludes damages received as a result of personal physical injuries or physical sickness from a taxpayer’s gross income.
Unless there was a trial here and recovery was for breach of contract or punitive damages again it is not taxable.A settlement here would not be taxable.
Here you keep the settlement tax free , no write offs but nothing is taxed it is your money to spend or save or whatever here.
I appreciate the chance to help you today.Thanks again.