Question

Cross Income Exclusions and Deductions for AGI 4–39 13. Physical Injury and Sickness Payments. (Obj. 1) For each taxpayer, discuss how much (if any) of the payments received during the year are included in gross income. a. Anne sued her employer for discrimination and was awarded $50,000. b. Todd was physically injured on the job. He is reimbursed $16,400 for medical expenses he paid as a result of his injuries. Todd's employer paid 100% of the premiums on his health insurance policy. c. Meg was physically injured on the job. She received $12,000 of workers' compensation. d. Sandra had an adverse reaction to the drug her doctor prescribed. She sued the drug company and was awarded $12 million. Of this amount, $11.5 million was for punitive damages.

please use the 2019 tax system

Answer 1

Ans. 13 a. Award for discrimation is normally divided into two parts, One part is emotional losses and the other part of award is of financial losses. Tax treatement of both these treatement don't differ except its presentation by Employer in different forms. The award is wholly taxable in the hands of recepient.

Ans. 13 b. Medicial expenses reimbursement is wholly exempt from tax and hence not taxable Income.

Ans. 13 c. Workers compensation for physical injury is totally exempted Income as per prevailing tax laws, hence not taxable.

Ans. 13 d. As per tax laws, when a person claims for drug reactions, one is awarded two types of award, one is physical distress and other one punitive damages. Physical stress award part is not taxable, the other punitive award is taxable in the hands of recepient.