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, damages received on account of personal physical injuries or physical sickness are excluded from gross income. However, this exclusion does not apply to any punitive damages or to any damages received for other than personal physical injuries or sickness. As Derrick received damages due to his physical injuries, the settlement amount is excluded from his gross income. Therefore, the answer is (C) $95,000.

Derrick Was in an Automobile Accident While He Was Going