Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Include the following as ordinary income.
Interest on any award.
Compensation for lost wages or lost profits in most cases.
Punitive damages. It does not matter if they relate to a physical injury or physical sickness.
Amounts received in settlement of pension rights (if you did not contribute to the plan).
Patent or copyright infringement,
Breach of contract, or
Interference with business operations.
Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.
Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
Emotional distress. 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.
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. Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders.
Deduction for costs involved in unlawful discrimination suits. You may be able to deduct attorney fees and court costs paid to recover a judgement or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deduction as an adjustment to income on Form 1040, line 36. The following rules apply.
The attorney fees and court costs may be paid by you or on your behalf in connection with the claim for unlawful discrimination, the claim against the United States government, or the claim under section 1862(b)(3)(A) of the Social Security Act.
The deduction you are claiming cannot be more than the amount of the judgement or settlement you are including in income for the tax year.
The judgement or settlement to which your attorney fees and court costs apply must occur after October 22, 2004.
T61supradean said:somebody close to me has perminent facial scars. I was told by one person on here that the money she won wasnt taxable because it leftg her with lifelong scaring.....he even sent me the link but i cant find it.
help me out.