are emotional distress damages taxable
If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, unlawful discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Even if you suffer a physical injury or physical sickness, you will be taxed on damages relating to a breach of contract if it is the breach of contract that causes your injury, and the breach of contract is the basis of your lawsuit. Further, punitive damages are always taxable. Emotional Damages Are Not Taxable. In a recent landmark decision, the U.S. Court of Appeals for the District of Columbia Circuit held that compensatory damages for emotional distress and loss of reputation are not taxable. The issue first surfaced when Marrita Murphy reported environmental hazards at a New York Air National Guard base where she worked. Compensation for Physical Injury is Not Taxable. As a general rule, the proceeds received from most personal injury claims are not taxable under either federal or state law. It does not matter whether you settled the case before or after filing a lawsuit in court. Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Do not include them in your income. This means typical personal injury damages that are meant to compensate the claimant for things like lost wages, medical bills, emotional distress, pain and suffering, loss of consortium, and attorney fees are not taxable as long as they come from a personal injury or a physical sickness. The judgment or settlement to which your attorney fees and court costs apply must occur after October 22, 2004. I would recommend seeking professional advice on this matter if there is still a question after reviewing when settlements for emotional distress are considered taxable. Neither the federal government (the IRS), nor your state, can tax you on the settlement or verdict proceeds in most personal injury claims. Federal tax law, for one, excludes damages received as a result of personal physical injuries or physical sickness from a taxpayer’s gross income. If, for example, you have a claim for emotional distress or employment discrimination, but no actual physical injury, then your settlement or verdict would be taxable unless you can prove even the slightest amount of physical injury. Hello, I received a settlement in July of 2008 for a grand total of $140,000. The settlement agreement specifically states that my portion in the amount of $64,000 was in compensation for emotional distress. The other $75,000 is paid directly to my attorneys.
No