Question

US Tax Question

Linda worked for a large food brokerage firm. In january of this year she was terminated. After a court battle she was reinstated in her job and received from the frim in November punitive damages totaling $7,500, Must Linda include the $7,500 in punitive damages in her 2018 tax return?

Answer 1

Taxability of Punitive Damages:

Punitive damages or awards received for physical injuries or sickness are generally not taxable. However, punitive damages or awards are generally taxable if they are paid to compensate a taxpayer for non-personal injuries.

However, Punitive damages are taxable and should be reported as “Other Income” on line 21 of Form 1040, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness. (So student should note that, the taxabality is not relevant, to include it in tax return.)