Damages for Emotional Distress are Taxable
The tax court confirms that damages received for emotional distress are taxable. A woman claimed she was retaliated against by her former employer because she requested medical accommodations for an earlier workplace injury. She filed a discrimination lawsuit and a judge awarded her damages for emotional distress. She claimed her emotional trauma was related to a previous physical injury so the awarded amount was tax-free, but the courts ruled it was indeed taxable.