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Pam recently was sickened by eating spoiled peanut butter. she successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000 − she now fears peanut butter), and punitive damages ($44,000). what amount must pam include in her gross income?

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barnuts

Answer: $44,000

The tax laws state that any payments (except PUNITIVE DAMAGES) on the account of a physical injury or physical sickness are non-taxable. Damages that taxpayers can receive relating to emotional distress are also non-taxable. Punitive damages however are fully taxable, because they are intended to penalize the harm-doer rather than to compensate the taxpayer for injuries.

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