Question

Tom was injured in an automobile accident and received $25,000 for his physical injury, $60,000 for his loss of income, and $10,000 for punitive damages. As a result of the award, the amount Tom must include in gross income is?

Answer 1

Answer:

The amount received due to physical damages will not be included in taxable income.

This amount will not be included if the expense for the same has not been claimed by the person.

Thus damages received for physical injuries will not be included in gross income or Tom.

Damages received for loss of income and punitive damages are both of compensation in nature and thus taxable. It both will be added in gross income.

Thus $ 25,000 for damages of physical injuries is not taxable.

Rest damages for loss of income amounting to $ 60,000 and $ 10,000 for punitive damages will be added to gross income of Tom.