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Federal Income Tax

Damage Awards for Physical Injury or Sickness

Damage Awards for Physical Injury or Sickness

Learn how some damage awards for physical injury or illness may be excluded from gross income.


In this lesson, we'll discuss the rules that exclude compensatory-damage awards for bodily illness and injury from gross income.

Introduction, General Rules

Compensatory and punitive damages meet the general definition of gross income and are thus taxable, unless the Internal Revenue Code, or IRC, explicitly excludes them. See Com'r of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426 (1955). IRC Section 104(a)(2) excludes compensatory damages received on account of either physical illness...