If you’ve been awarded money or damages through a court of law, it’s important to note whether the funds are subject to taxation as income. In order to determine if settlements or judgments need to be included in your income, you have to look at the individual item that the money is taking the place of. The following need to be included in your regular income for tax purposes:

• Interest resulting from an award
• Money awarded for lost wages or profits
• Punitive damages
• Money resulting from pension rights (provided you didn’t make contributions)

If you’ve been awarded damages in a particular case, you will need to include money awarded for the following:

• Copyright infringement or patent breach
• Violations of contracts
• Obstruction of business operations
• Awards gained under the Age Discrimination in Employment Act.

For tax purposes, you are not required to calculate any settlements resulting from personal injury or physical sickness, regardless of if the award was paid in installments or a single lump-sum.

There are special requirements for money received due to judgments of character defamation, surrendering custody of a minor, and alienation of affection.