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Yes - these will be reported as taxable income.
Normally - that amount is reported to you on form 1099misc - box 3
and on your tax return - form 1040 - it will be transferred to line 21.
That amount is added to other taxable income.
If that payment will be in 2018 - it will be reported on your 2018 tax return.
Let me know if you need any help.
The statute ONLY allows to exclude from taxable income a settlement for personal physical injuries or physical sickness.
The proceeds you receive for emotional distress or mental anguish originating from a personal physical injury or physical sickness are treated the same as proceeds received for Personal physical injuries or physical sickness.
That amount is NOT reported on form 1099misc - it is specifically excluded.
But all other settlements are taxable.
If the proceeds you receive for emotional distress or mental anguish do not originate from a personal physical injury or physical sickness, you must include them in your income.
That is why it will be reported to you.
You will not be able to exclude that payment.
For income tax purposes - there is no difference - as all income is added together.
Wages reported on W2 are subject to additional employment tax withholding 7.65% will be withheld from your pay - so that is a matter - you may want less wages.
On the other hand - wages will increase your future social security benefits, and may have some other positive effect because that is earned income.
You might find helpful following publication regarding
Settlements — Taxability
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