Was the settlement paid in a lumpsum or is it structured over time? If it is a structured settlement, the laws regarding how this is handled by the IRS have been clarified by federal legislation. In most cases, those payments are not taxable, but you will have to take a close look at the settlement agreement and the annuity contract that was issued.
Integrity Funding Sources works with structured settlements everyday, and helps recipients get clear about what their structured settlements are worth in todays dollars. If you need help calculating the value of your annuity, or how to convert that into cash, visit: http://www.integrityfunding.net