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In that case, you'd report the medical expenses related to the incident as miscellaneous (other) income. Punitive damages are taxable except in certain wrongful death cases, as are awards for employment discrimination and injury to reputation (libel, slander, defamation, etc.).
Under Section 104(a)(2) of the federal Internal Revenue Code, damages paid on account of a physical injury or wrongful death are excluded from an individualâs income tax. But importantly for those who depend on this settlement, the investment income earned from a lump-sum settlement can be fully taxable.