Reply #7: Recovery for personal injuries are not taxable

[intheozone]

per Internal Revenue Code section 104. If you recover damages on account of an actual physical injury, whether as payment for pain and suffering or compensation for medical costs, they are excluded from income.
If part of the recovery is paid to compensate you for lost wages or say replacement of a damaged vehicle, those parts are not excluded from income.
It is wise to structure any settlement so the largest, if not all, is paid as compensation for the injuries. Even if the payor gives you a form 1099 reporting the payment, if the recovery is on account of personal injury, you do not have to include it in your income.
Don't know what state you are in, but most state's conform to the IRS code in determining what is and is not excludable from income. You should check with your state's tax agency to be sure.