I have a client who received a substantial settlement from a school district intended to compensate victims for trauma. This is my first time encountering this situation. I understand that certain settlements related to physical bodily injury—such as workers’ compensation or car accident injury claims—are generally not taxable.

Could someone guide me on how to determine whether this type of settlement is taxable? Additionally, if it is taxable, what steps should the client take to properly report the income to the IRS, particularly if no information form (such as a 1099) has been issued?

Any guidance on how to approach this situation or relevant considerations when advising the client would be greatly appreciated.