Summary of Tax Treatment of Settlements and Verdicts

This is the eighth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the taxable nature of a variety of settlements and verdicts.

Damage Award	Taxable?	Exceptions	Relevant Case Law / Statute
Physical Injury / Illness	No	Taxable if not recovered for a tort or tort type right	IRC Section 104(a)(2)
Back Pay	Yes	Not Taxable if qualified under Section 104	Rev. Rul. 96-65
Front Pay	Yes	Not Taxable if qualified under Section 104	Rev. Rul. 96-65
Emotional Distress	Yes	Not Taxable if qualified under Section 104	IRC Section 104(a)(2)
Medical Reimbursement	No	Taxable if already deducted	IRC Section 213
Medical Insurance Reimbursement	No	Taxable if already deducted	IRC Section 213
Pre Judgment Interest	Yes		IRS Section 61(a)(4) Rozpad v. Commissioner 154 F.3d 1 (1^st Cir. 1998)
Post Judgment Interest	Yes		IRS Section 61(a)(4) Rozpad v. Commissioner 154 F.3d 1 (1^st Cir. 1998)
Wrongful Refusal to Hire	Yes		IRC Section 61
Balance of Contract	Yes		IRC Section 61
Liquidated Damages	Yes		IRC Section 61
Reimbursement for Deductible for Losses	Yes	Not taxable if not previously deducted	IRC Section 61
Punitive	Yes		Ogilivie v. United States, 519 U.S. 79 (1996); IRC Section 104(a)(2)
Discrimination	Yes		Commissioner v. Schleier, 515 U.S. 323 (1995); Rev. Rul. 96-95
Defamation	Yes		IRC Section 104(a)(2)