Visitor Question

Compensatory Damages for Discrimination Lawsuit…

Submitted 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?

Disclaimer: Our response is not formal legal advice and does not create an attorney-client relationship. It is generic legal information based on the very limited information provided. Do not rely upon the information in our response, or anywhere else on this site, when deciding the proper course of a legal matter. Always get a personalized case review from a local attorney.

Answer

Dear Anonymous,

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 a licensed attorney. Find a local attorney to give you a free case review here , or call (888) 647-2490.

Best of luck,

Published: May 19, 2011

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