Is a settlement from a sexual harassment lawsuit taxable?

Answer 1

It depends on the sexual harassment. Was physical contact involved? The no taxes. Be careful.

This should be stated in your settlement or a letter as sexual harassment where personal and physical injuries resulted.

June 24, 2008Tax Court: Damages for Sexual Harassment Constitute Taxable Income

The EEOC found that an employee of the U.S. Postal Service was sexually harassed by a coworker and that the USPS failed to take appropriate corrective action. The EEOC awarded her $33,695 in damages for the sexual harassment. The Tax Court yesterday held that the damages were not excludible from the employee's income because they were not received "on account of personal physical injury or physical sickness" within the meaning of § 104(a)(2). Sanford v. Commissioner, T.C. Memo. 2008-158 (6/23/08).

June 24, 2008 in New Cases | Permalink

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Answer 2

You pay taxes on any kind of settlement. The government taxes your money regardless of how you got your money. One man went to jail because he did not pay taxes for dealing drugs, and another for embezzlement. The government wants you to pay taxes regardless of how you got your money.

The above rather extreme comment is not surprisingly, incorrect in many many ways. Theure are many, many ways to receive many and for it not to be taxable.

The type of loss causing the settlement may well drive whether the money from it is taxable. for example, if you settle for damages received to your property (somebody hit your car), or even to you, (you lost any eye because someone through a firecracker), that mony is only to restore you to the position you were in and is NOT taxable. (Similar to had you sold the car).

On the other hand, if your getting paid because of the loss of income from not having the use of the car and you lost income (same with sight), that income, which would have been taxable when made, is more than likely taxable when received as a settlement. Hence, the terms used and structure of the settlement agreement are very important and something the lawyer involved should consider.