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Are Damages or Punitive Damages Taxable?

The quick answer is damages or awards received for physical injuries or sickness are generally not taxable.  However, punitive damages or awards are generally taxable if they are paid to compensate a taxpayer for non-personal injuries.  Internal Revenue Code (IRC) Section 104 is the area of law that defines the taxable treatment of compensation for injuries or sickness.   Continue reading

22 thoughts on “Are Damages or Punitive Damages Taxable?

    1. Rape should be considered a physical injury and I would hope that the IRS, any state and the courts would agree to exclude any award due to rape as we feel it is a phsyical injury and exempt from taxable income.

    1. This is never a plesant topic. Any settlement for this item should not be taxable as I’m sure the assult would be deemed a phyiscal damage. Plus I would hope the IRS wouldn’t even try to go there.

    1. If the judgement is for a disability, it shouldn’t be taxable. However, if the judgement includes items other than a disability, check back with us or your tax advisor.

  1. If you sue a public fast food restaurant for ADA Title 3 violation because I am deaf, If I am awarded a settlement, do I have to pay taxes on this?

    1. I would have to confirm, but since being deaf should qualify as a disbility, I’m guessing it would be exempt based on the exceptions in the article. Make sure you get good tax advice before you file your tax return for that year. If you don’t get a 1099, then it seems as if the fast food company considered it not taxable, but they are not the one that would be liabile for the tax. Contact us if we can be of further assistance.

  2. I was in a car accident and i was hurt. My toe was broken and i had burns on my arm. My settlement is 12000. will i be taxed?

    1. Joanna, Since you had a physical injury, your settlement shouldn’t be taxable. Make sure you determine if you have received a 1099 or will receive a 1099. If you do, then you will need your tax return to show that the amount isn’t taxable due to a physical injury award. Thank you for asking the question. Best of luck in healing.

  3. I was physically, mentally, and sexually assaulted at my place of work as well as discriminated against due to my gender and received a settlement
    Is this tax deductible

    1. You need to work with your attorney and tax advisor, but it seems as if your settlement award might not be taxable if you can support that the award was for physical damages.

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  5. Is an EEOC case against a company for discrimination for Ada taxable ? One part taxes taken out the second part of the money I was given a 1099

    1. Hello Deanette. I’m not sure EEOC awards would be considered a damage related to a physical issue pursuant to IRC section 104. You will need to review this with your tax counsel. IRC section 104 is meant to allow taxpayers an exemption to excludes financial awards for physical damages. Normally, this is part of the negotiation during the law suit. I’m not sure that EEOC qualifies as an exemption under IRC section 104. Seems like the company that paid you, decided what was taxable and what wasn’t based on the 1099. If you don’t agree with that approach, you will need to have your attorney and tax preparer decide if the 1099 can be corrected.

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