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I recently received a settlement for a sexual harassment/wrongful termination lawsuit . Do I need to pay taxes on it?

Philadelphia, PA |

It was settled out of court prior to trial 3 years after I was terminated. Employer settled rather than admit liability. There was nothing documented as to whether the money was for lost wages, damages, psychological distress, etc. It was just a flat settlement made to make the whole thing go away. My lawyer took his share up front but I am getting conflicting answers as to whether or not my money is taxable.

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Attorney answers 2


Unless this was for a physical injuries or discrimination your settlement is taxable and included in your income in the year you received the settlement.

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.


Your question is not very specific about the actual damages you suffered. Normally, damages are included in taxable income. However, personal injury is excluded from taxable income. Talk with a tax attorney or CPA about this prior to filing your tax return. Remember that you must have the money to pay the tax debt.

This answer is not legal advice.and does not constitute tax advice. This answer does not provide advice related to tax shelters. Consult an attorney for legal or tax advice.

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