Question

Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

a. $700,000
b. $500,000
c. $490,000

Answer 1

a. $700,000

Step-by-step explanation:

Since the amount received by Theresa arise out of loss of income, emotional harm, and punitive damages and NOT out of physical injuries, none of the received amount is tax exempt and she should include the full $700,000 in her gross income.

The answer is a. $700,000