Emotional distress settlements
Usually taxable
Can You Write Off Emotional Distress Settlements?
Short answer: Damages for emotional distress are taxable unless they stem from a physical injury, though medical costs for the distress can be excluded.
Damages for physical injury or sickness are tax-free; lost wages, interest, punitive damages, and emotional distress without physical injury are taxable.
Records to keep: Keep receipts, statements (1098, 1098-T, 1099, W-2G), and a note of what each cost was for. Compare itemizing to the 2026 standard deduction before you claim.
Emotional distress settlements
Usually taxable
Individuals / Personal Taxes
Damages for emotional distress are taxable unless they stem from a physical injury, though medical costs for the distress can be excluded.
Business justification
Damages for emotional distress are taxable unless they stem from a physical injury, though medical costs for the distress can be excluded. Damages for physical injury or sickness are tax-free; lost wages, interest, punitive damages, and emotional distress without physical injury are taxable.
Category
- Personal Tax Deductions