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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.).
If you do not roll it over, special tax rules may apply. Income Tax Withholding: Mandatory Withholding. If any portion of the death benefit payment is paid to you, the Plan is required by law to withhold 20% of that amount. This amount is sent to the IRS as federal income tax withholding.