Question

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($4,690), her emotional distress ($7,500 - she now fears peanut butter), and punitive damages ($54,250). What amount must Pam include in her gross income?

Answer 1

Pam must include the punitive damages of $54,250 in her gross income. The medical bills and emotional distress compensation are not considered taxable income.

Step-by-step explanation:

Pam must include the punitive damages of $54,250 in her gross income. Punitive damages received from a lawsuit are generally considered taxable income.

However, the medical bills and emotional distress compensation are not considered taxable income.