According to the Internal Revenue Service, burn injury settlements and awards are not considered to be income and are not subject to tax. However, there is an exception in regards to punitive damages. Punitive damages are sometimes awarded in cases in which the defendant exercised particularly reckless behavior. The damages are not tied to a personal expense or impact from the injury, and therefore can be taxed as income.
Additionally, if you claimed your medical expenses as a deduction on your tax returns before you received a settlement or award that included damages for medical expenses, you will need to repay the amount that you deducted.
An accountant can help answer all of your questions about state and federal taxes you might owe after a settlement or judgment.