Is the Income Awarded in a Sexual Harassment Settlement Taxable?
Earlier this year, a jury that consisted of five men and seven women awarded TV news reporter Erin Andrews $55 million in her lawsuit regarding a 2008 video shot of her by a peeping tom while she was staying at a Vanderbilt University Marriott in Nashville. The jury found multiple parties responsible including the hotel owner, the operator, as well as the man who shot the footage. But is Andrews’ award taxable?
If you have been the victim of sexual harassment, made a legal claim, and were eventually awarded a settlement, the last thing on your mind is likely taxes. While you do not want to pay taxes unnecessarily, you also do not want to be held liable for underpaying the IRS or your state’s tax authorities. For this reason, it is important to speak with a knowledgeable sexual harassment attorney early in the process if you believe you have been the victim of workplace discrimination.
Will the Sexual Harassment Settlement be Taxable? It Depends
Under federal tax code, damages awarded for physical injuries or sickness are tax-free. Damages awarded for emotional injuries, however, are not. The exception to this is if the emotional issues were triggered or caused by a physical injury or sickness. While this may seem simple, in practice it is not.
One of the common disputes occurs over what is considered a physical injury or illness. This is because both the Internal Revenue Service (IRS) and Congress have yet to define this term. Generally, the IRS is looking for “observable” physical injuries such as bruises, broken bones, or other bodily harm. In the case of sexual harassment, however, these types of physical signs may or may not be present.
According to the Huffington Post, Andrews broke down in tears multiple times while on the witness stand, testifying that the videos took an emotional toll on her. As a result of the video, which reportedly has been viewed more than 17 million times since 2009, Andrews now switches rooms when she arrives at hotels and sweeps the rooms for video and/or recording devices.
It is important to know that if the award is taxable, taxes would apply whether or not the damages were awarded in a settlement or by way of a judgment. Even if damages are strictly emotional, any medical expenses relating to the injury are tax-free. Many non-traditional treatments count in addition to more widely accepted medical services.
Finally, whether your attorney is paid an hourly rate or receives a contingency fee, a prudent plaintiff will factor in these costs when calculating tax liability. This is because for tax purposes 100 percent of the recovery amount will be considered if it is indeed taxable and, as a result, your accountant will have to itemize the deduction subject to limitations under the tax code.
Contact a Sexual Harassment Attorney
Sexual harassment cases can be devastating for the victim, often resulting in lifelong emotional and sometimes physical damage. If you or someone you know has experienced workplace harassment – whether sexual or otherwise – contact the experienced attorneys at Ricotta & Marks, P.C. right away to tell your story. Our skilled New York sexual harassment lawyers will hand your case with sensitivity, confidentiality and aggressively advocate on your behalf. Click here to schedule your initial case evaluation.