Just before the holiday break, a federal appeals court said it will reconsider a case involving the taxability of damages received for emotional distress.
The U.S. Court of Appeals for the District of Columbia Circuit vacated its late-August decision, which ruled that a woman did not owe taxes on a $70,000 settlement she received from a former employer for "emotional distress" and "loss of reputation." The court had found that Section 104 of the U.S. tax code -- which declares only compensation for physical injuries is tax exempt -- was unconstitutional and that the settlement shouldn’t be defined as income.
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