The general rule regarding the taxation of amounts received as a result of the resolution of lawsuits and other legal remedies is section 61 of the Internal Revenue Code (IRC). This section states that all income is taxable from any derivative source, unless they are exempt by another section of the code. The general answer is yes; court settlements are usually taxable. Settlement taxes can vary widely.
The IRS states that money received in a lawsuit must be taxed based on its purpose.