Derrick was in an automobile accident while he was going to work.The doctor advised him to stay home for eight months due to his physical injuries.The resulting lawsuit was settled and Derrick received the following amounts: How much of the settlement must Derrick include in ordinary income on his tax return?

Question

Derrick was in an automobile accident while he was going to work.The doctor advised him to stay home for eight months due to his physical injuries.The resulting lawsuit was settled and Derrick received the following amounts:  How much of the settlement must Derrick include in ordinary income on his tax return?

Quizplus · Accepted Answer

Generally, settlements for physical injuries or sickness are not taxable. Therefore, Derrick does not have to include the settlement in ordinary income unless he received any amount for punitive damages, emotional distress, or loss of income not related to the physical injuries. Since the question provides no information about these types of damages, we can assume that the entire settlement is for physical injuries and, therefore, not taxable. Thus, Derrick does not have to include any of the settlement in ordinary income on his tax return.

Derrick Was in an Automobile Accident While He Was Going