How do I report income received as a prize or award?

If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on line 21 (other income), Form 1040. If you receive merchandise, you must report the fair market value of the item(s) as income. Refer to Chapter 13 of Publication 17, Your Federal Income Tax, for additional information.

References:

• Publication 17, Your Federal Income Tax

I won $250 in a charity raffle. Where do I show this on my return?

Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 (PDF) and include all your winnings on line 21 (other income). For information on deducting gambling losses. Refer to Tax Topic 419, Gambling Income and Expenses, or Publication 529, Miscellaneous Deductions, .

References:

• Form 1040 (PDF), U.S. Individual Income Tax Return
• Tax Topic 419, Gambling Income and Expenses
• Publication 529, Miscellaneous Deductions

I received damages for emotional distress suffered as a result of employment discrimination. Is the money I received taxable?

Emotional distress is not considered a physical injury or physical sickness; therefore, damages for emotional distress are includible in income except to the extent they are paid for medical care attributable to emotional distress.

References:

• Publication 525, Taxable and Nontaxable Income
• Tax Topic 422, Nontaxable Income
• Revenue Ruling 96-65

Because of my age, my employer wanted to terminate my employment. I signed a statement not to sue and received a lump-sum payment from my employer for age discrimination. Is this payment taxable?

A lump-sum payment for cancellation of your employment is taxable income in the year you receive it and must be reported with your other salary and wages. This is true even if the payment was received (by suit or agreement) as settlement under the Age Discrimination in Employment Act.

Refer to Publication 525, Taxable and Nontaxable Income, for more details.

References:

• Publication 525, Taxable and Nontaxable Income
• Tax Topic 422, Nontaxable Income
• Revenue Ruling 96-65 and Commissioner v. Schleier, 515 US 323 (1995)

Is the money received from my settlement taxable?

For court awards and damages, to determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item which the settlement replaces. Include the following as ordinary income:

Interest on any award.

Compensation for lost wages or lost profits in cases other than those where the payments are for wages lost as a result of physical injury.

Punitive damages. (But see below)

Amounts received in settlement of pension rights (if you did not contribute to the plan).

Damages for: (A) Patent or copyright infringement. (B) Breach of contract. (C) Interference with business operations.

Any recovery under the Age Discrimination in Employment Act.

Injury to your reputation .

Alienation of affection.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Damages for emotional distress due to a physical injury or physical sickness are not taxable.

Punitive damages are taxable. It does not matter if they relate to a physical injury or a physical sickness.

For additional information, refer to Publication 525, Taxable and Nontaxable Income, or Tax Topic 422, Nontaxable Income.

References:

• Publication 525, Taxable and Nontaxable Income
• Tax Topic 422, Nontaxable Income