Are lawsuit settlements and judgments taxable income?
There are a lot of rules and exceptions for whether lawsuit settlements are taxable or nontaxable. The general rule is that damages for a physical injury or physical sickness are not taxable and are not reported on your tax return.
Punitive damages are usually considered taxable income. The only exception would be a wrongful death under certain circumstances.
Damages for emotional distress are generally treated as taxable income unless the emotional distress is related to a physical injury or illness.
Other lawsuit damages such as lost wages, discrimination, or defamation are usually taxable income that need to be reported on your tax return.
Reimbursed medical expenses are usually nontaxable and can be excluded from your tax return.
For more information, please review IRS Publication 4345 .
Punitive damages are usually considered taxable income. The only exception would be a wrongful death under certain circumstances.
Damages for emotional distress are generally treated as taxable income unless the emotional distress is related to a physical injury or illness.
Other lawsuit damages such as lost wages, discrimination, or defamation are usually taxable income that need to be reported on your tax return.
Reimbursed medical expenses are usually nontaxable and can be excluded from your tax return.
For more information, please review IRS Publication 4345 .
