Damages that a taxpayer receives in a settlement for physical injury or illness can generally be excluded from taxable income. In a new case, a settlement payment was received by a taxpayer for employment discrimination, so the U.S. Tax Court ruled it must be included in income. The court rejected the taxpayer’s argument that the employment discrimination led to a later physical injury. In addition, it noted that, when the Veterans Administration agreed to pay the settlement, there was no mention of any physical injury suffered by the taxpayer. (TC Memo 2018-127)
