“Compensatory damages are intended to compensate the taxpayer for the damages incurred
The code §104 states “Compensatory damages are intended to compensate the taxpayer for the
damages incurred. Only those compensatory damages received on account of physical personal injury or
physical sickness can be excluded from gross income” Which provides employees with financial benefits
in case of physical injuries during work. “Such tax exclusion treatment includes amounts received for
loss of income associated with physical personal injury or physical sickness.” and “Compensatory
damages awarded on account of emotional distress are not received on account of physical injury or
physical sickness and thus cannot be excluded from gross income.” There is an exception: only if the
emotional damages are originated from a physical injury or illness, then it can be excluded from gross
income for tax purposes as damages awarded for physical injuries or illness. The code §104 is lack of tax
benefits for compensatory damages of emotional injury by including those compensations in gross
income.
Emotional damages has the same impact as physical injuries on every victim, such as damages of
reputation, emotional distress, and gender discrimination ruins personal careers, family, and life.
Damage of reputation is an opinion that damages the reputation of an entity, that opinion is
typically a result of social evaluation on a set of criteria. Reputation may be considered as a component
of identity, reputation is known to be influential and valuable in competitive market settings. When
individuals or organizations suffer from damage of reputation, they cannot exclude those awards from
their gross income for tax purposes according to §104.
