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In that case, you'd report the medical expenses related to the incident as miscellaneous (other) income. Punitive damages are taxable except in certain wrongful death cases, as are awards for employment discrimination and injury to reputation (libel, slander, defamation, etc.).
Best Answer: In the US, life insurance proceeds (the death benefit you mother will collect) is income tax free. The one exception is life insurance paid by an employer (your father's place of work) for his benefit. In that case the first $50,000 of death benefits are income tax free, the rest is taxed.If your father had a $250,000 policy at work, $50,000 would be tax-free and $200,000 would be taxed.lso, your insurance agent should be able to tell you if your life insurance policy benefits will be taxable. Finally, different taxes may apply to the benefits paid by your life insurance policy if the death benefit is paid to the beneficiary in installments, instead of as a lump sum.