Compensatory Damages for Discrimination Lawsuit...
by Anonymous (Illinois)
The Equal Employment Opportunity Commission sued a food store chain for firing people on disability. The food store chain agreed to pay $3.2 million. I received a letter from the E.E.O.C. saying they were sending my portion of settlement and that it may be taxed. It also said it was compensatory damages.
I'm wondering if compensatory damages are taxed in the state of Illinois?
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ANSWER for "Compensatory Damages for Discrimination Lawsuit...":
The State of Illinois does not tax Compensatory Income. The IRS though is a different story. Up until about 10 years ago the IRS did not tax Compensatory Damages. Regrettably since that time the IRS modified the Compensatory Damages Exemption. (See IRS Publication 525 at IRS.gov)
Today compensatory damages for lost income, punitive damages, and reimbursement for medical testing, pharmaceuticals and other over-the-counter injury related items are taxable as regular income.
The only part of compensatory damages which is still exempt from federal taxes is that part of the compensatory damages which are strictly for your injury. So take away the amount for Pain and Suffering and any Punitive damages or medical tests such as an MRI, and over the counter injury related items, and what you are left with is compensation for your injury.
Now comes the difficult part; and that is attempting to determine for federal tax purposes the specific amount of your award which was just for your personal injury. In that regard we would strongly urge you to speak with your attorney to identify the exempt portion of the settlement or court awarded judgment.
The above is general information. Laws change frequently, and across jurisdictions. You should get a personalized case evaluation from an attorney licensed in your state. Find a local attorney to give you a free case review here, or call (888) 647-2490.
The accuracy of information provided on this site is not guaranteed. It is generic information for informal purposes only. It is NOT formal legal advice. Your use of this site does NOT create an attorney-client relationship. Before relying on any information found in this site you should consult with a licensed attorney in your state. If you are currently represented by an attorney, you should strictly abide by his/her counsel.