Is the money received from my settlement taxable?

For court awards and damages, to determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item which the settlement replaces. Include the following as ordinary income:

Interest on any award.

Compensation for lost wages or lost profits in most cases.

Punitive damages.

Amounts received in settlement of pension rights
(if you did not contribute to the plan).

Damages for:

• Patent or copyright infringement.
• Breach of contract.
• Interference with business operations.
• Any recovery under the Age Discrimination in Employment Act.

Do not include in your income compensatory damages for the following:

• Personal physical injury or physical sickness (whether received in a lump-sum or installments).
• Special rules apply for amounts received after
• Damages to your character.
• Alienation of affection.
• Surrender of custody of a minor child.