Damages Are Taxable, Even for “Political Discrimination” Says IRS

If you sue for physical injuries like a slip and fall or car accident, your damages are tax-free (except for punitive damages and interest). The tax-free treatment applies even if you sought lost wages because you couldn’t work after your injuries. Before 1996, “personal” damages were tax-free, including emotional distress, defamation, etc. But since 1996, your injury must be “physical.”


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