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JBE, CPA
JBE, CPA, Certified Public Accountant (CPA)
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Experience:  25 Years Experience
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Taxes owed on Compensatory or/and Punitive damages

Customer Question

Hi...I can’t seem to get a straight answer on whether a person living in the state of Ga. has to pay taxes on Compensatory Damages and/or Punitive Damages won in a
lawsuit. I just discovered you and would greatly appreciate an answer. My tax friends didn’t know...Thanks very much
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.

Before an accurate answer can be supplied, you will need toprovide additional information.


What was the nature of the lawsuit? What damage was suffered that was compensated? What were the punitive damages for?


Please supply the above information so we can provide an accurate answer.


[email protected]   
Expert:  Tammy F. replied 11 years ago.

 If the payment is an "inconvenience payment," meaning that you are being paid because a person or situation inconvenienced you, the money IS taxable.


If the money is to reimburse you for damages, services rendered or other items that you paid out of pocket for which you are being reimbursed, the money is NOT taxable.


Let me know if you still don't understand or if you still have questions.

Tammy F., Not an active Expert
Category: Tax
Satisfied Customers: 9168
Experience: Not an active Expert
Tammy F. and 3 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Does that clarify? No money has been received
yet but the judgement is positive...thanks
Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Oh Hi again... the compensation would be for financial damages. A large multi level company falsified records and refused paying on contracts and refused to follow the rules of regulation Z. Many people were cheated and there was a Rico lawsuit involved because the large banks hired people to go into the the company and reject contracts for payment. These were huge amounts of money and lots of financial loss for many people. Great financial loss and
the credit reports were effected negatively. many other things involved.
Expert:  JBE, CPA replied 11 years ago.
If the damages are to reimburse you for a personal injury then they are not taxable.

If you receive a payment for punitive damages it will be taxable.

If you win an award for non-injury damages such as a discrimination suit or defamation award then the payment is taxable.

If the payment is to reimburse you for medical expenses or other expenses that you previously deducted on a previous income tax return then it will be includible in income.

JBE, CPA

JBE, CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 137
Experience: 25 Years Experience
JBE, CPA and 3 other Tax Specialists are ready to help you

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