Theresa sued her former employer for age, race, and gender discrimination.She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages.She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

Question

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Settlement amounts for lost income and punitive damages are generally taxable. Emotional distress damages are also taxable unless they are for physical injury or sickness. Since the settlement includes amounts for lost income and punitive damages, Theresa must include the entire $700,000 in her gross income.

Theresa Sued Her Former Employer for Age, Race, and Gender