Question

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($4,380), her emotional distress ($8,700—she now fears peanut butter), and punitive damages ($51,000). What amount must Pam include in her gross income?

Answer 1

amount Pam include in her gross income is $51,000

Step-by-step explanation:

given data

medical bills = $4,380

emotional distress = $8,700

punitive damages = $51,000

to find out

amount must Pam include in her gross income

solution

we know that according to tax laws any payments other than punitive damages in account of physical injury or any physical sickness are not taxable

so here Punitive damages is fully taxable and Punitive damages is taxable and it should be reported as other income even

and as we know that medical bills is actual cost of the medicine

but we can not add in gross income and here emotional stress not part of gross income because emotional stress is treated as damages receive as physical injury or sickness

so amount Pam include in her gross income is $51,000