Are monetary lawsuit awards taxable?

July 13, 2001

Subject:  tax question
Date:  Fri, 29 Jun 2001
From:  Lihong Lily Jiang

Hi Michael,

I have a question for you: a friend of mine had a lawsuit with his previous employer and won some money, in the paperwork he signed, it says that the money is not wages, he is wondering whether he should pay tax for it? Part of the money is for mental hurt or emotional hurt.

Thanks,
Lily

Answer

Date:  Mon, 09 July 2001

Hello Lily,

Your friend should consult with a tax advisor about the taxability of the damages award.

In most cases, these awards are taxable, unless they are for a physical injury.

You haven’t given me enough facts to make a conclusion, but it’s best to get advice for your friend’s individual situation.

Good luck!
Mike Gray

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