Court Awards and Damages - Are They Taxable?

The following settlement amounts received by compromise or judgment must be included in income on tax returns.

1. Interest on any award.


2. Compensation for lost wages or lost profits.


3. Punitive damage awards.


4. Amounts received in settlement of pension rights (if taxpayer did not contribute to plan).


5. Damages for: patent or copyright infringement operations, breach of contract, or interference with business operations.


6. Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.


7. Attorney fees and court costs where the underlying recovery is included in income.

The following compensatory damages are not included in income:

1. Personal physical injury or physical sickness, and


2. Emotional distress due to physical injury or sickness.

Additional resources:

Court Awards and Damages

Punitive Damages

Publication 4345

Settlements - Taxability