- Compensatory – money received for lost wages or profits
- Back pay
- Punitive damages
- Damages for patent infringement copyright infringement or breach of contract
- Unlawful discrimination
- Employment-related damages
- Attorney fees and costs
Personal injury settlements are an exception to this rule and not considered taxable gross income. In most cases compensatory damages such as lost wages received on account of a personal physical injury are excludable from gross income tax. These settlements however must be related to a physical injury or sickness. This means that emotional distress and verbal abuse do not fall within the non-taxable income category and are viewed separately by the IRS. Also as mentioned above punitive damages that are awarded during a lawsuit to compensate for the injury incurred and for the purpose of punishing the guilty party are taxable.
For more information on taxable income resulting from a settlement of a lawsuit contact Lindemeyer CPA.