Tax
Aug. 11, 2025
Tax issues in cases settling on appeal
While interest and punitive damages are usually taxable, how the verdict stands, what's appealed, and how the settlement is crafted can reduce or eliminate the tax burden.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Under Section 104 of the tax code, compensatory damages for personal physical injuries or physical sickness are free of tax. For generations, "personal injuries" were enough for an exclusion, but since 1996, the injury must be "physical." Lawyers and clients in serious physical injury and wrongful death cases are used to counting on the Section 104 exclusion. However, interest and punitive damages are always fully taxable, even in c...
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