If properly designed by the settling parties, a structured settlement can provide periodic payments that are excluded from income (tax-free) under Internal Revenue Code Section 104(a)(2), which states, "Gross income does not include...the amount of any damages received (whether as lump sums or as periodic payments) on account of personal injuries or sickness."
Workers Compensation and Disability claims also qualify for the exclusion pursuant to IRC Sec. 104(a)(1) and 104 (a)(3). As such, injured victims who elect to receive their personal injury recovery with an annuity will not receive a 1099 at any time following receipt of the annuity payments.
For information regarding the taxable-equivalent yields required to match the settlement annuity, please refer to the chart on this site.