What is a settlement in an injury claim?
A settlement is a deal that ends an injury claim: the other side, usually its insurer, pays an agreed amount and you sign a release giving up the right to sue over that injury. The federal courts define it as resolving a dispute without a trial, usually with no admission of fault. Most injury claims end this way.
Last checked November 9, 2026 · Official sources (5)
What does an injury settlement look like? An example
Example: after a rear-end crash, your bills are $8,000 and you missed $3,000 in pay. You send a demand for $30,000; the insurer offers $12,000; after a few rounds you agree on $20,000. You sign a release, and the check goes through your lawyer's trust account or to you. From it come any lawyer's fee, case costs and repayments to health plans that paid your bills, and the rest is yours. The numbers are only an illustration.
Why does it matter what a settlement covers?
Signing is final. Once you release the claim, you usually cannot reopen it if your injury turns out worse, so many people wait until treatment is finished or the long-term picture is clear. Read exactly who and what the release covers.
The release can matter if more than one party caused the harm. In Arizona, releasing one wrongdoer does not free the others unless its terms say so.
Trials are rare. A federal study of large counties found about three-quarters of tort cases ended through an agreed settlement or voluntary dismissal, and 3% by a trial verdict.
Is an injury settlement taxable?
Usually not for the injury itself. The IRS says gross income does not include damages received on account of personal physical injuries. Punitive damages are different: the IRS says they are taxable even when received in a physical injury settlement. Interest and other parts can raise their own tax questions. Our guides on settlement checks and timing cover the steps after you agree.
Settlement vs. verdict vs. judgment
A settlement is an agreement between the two sides. A verdict is the decision a jury or judge reaches at trial. A judgment is the court's formal order that makes the result enforceable. You control whether to accept a settlement; you do not control a verdict.
Questions
Can I reopen a settlement if my injury gets worse?
Usually not. A signed release generally ends the claim, which is why timing matters.
Do I pay taxes on a car accident settlement?
Damages for personal physical injuries are generally excluded from gross income. Parts such as punitive damages or interest may be taxable.
Does settling mean the other driver admits fault?
No. Settlements usually do not include an admission of fault.
Find out if you are owed money.
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See if I’m owed moneySources (5)
- U.S. Courts glossary, checked 2026-11-09. “Parties to a lawsuit resolve their dispute without having a trial. Settlements often involve the payment of compensation by one party in at least partial satisfaction of the other party's claims but usually do not include the admission of fault.”
- Bureau of Justice Statistics, Tort Cases in Large Counties, checked 2026-11-09. “About three-quarters of the cases were disposed through an agreed settlement or voluntary dismissal; 3% by a trial verdict.”
- IRS, Tax Implications of Settlements and Judgments, checked 2026-11-09. “IRC Section 104 explains that gross income does not include damages received on account of personal physical injuries and physical injuries.”
- A.R.S. § 12-2504, checked 2026-11-09. “It does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide”
- IRS Publication 4345, checked 2026-11-09. “Punitive damages are taxable and should be reported as "Other Income" on line 8z of Form 1040, Schedule 1, Additional Income and Adjustments to Income, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness.”