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Thursday, October 11, 2012

Receive Tax-Free Punitive Damages for Employers Who Make You Sick?

I was going through a series of articles that I received from the Texas Psychological Association (TPA), and I was absorbed by an article, “Are Damages For Depression Tax-Free?”. This title is eye catching for me as a mental health and information specialist because many individuals are unaware of tax issues relative to punitive damages that emanate from physical injuries, physical sickness, and mental health. The first few sentences of the article place the reader in the scenario as the individual who: is fired by an employer, falls into a deep depression and subsequently sues the employer. The question presented is whether the money received from settlement is taxable. This discussion interests me because many individuals are in situations that permit them to say, “My employer is making me sick!”

So, let us first gain some insight into what exactly is meant by “Damages for Depression”. The “Damages” that is referred to in this article is referencing the money that is awarded by the court for any loss or injury that resulted as a result of a wrong or negligent act of another party. The damages awarded by the court are punitive in the example provided, if the employer was found to be the cause of depression or any other physical sickness or injury. The main purpose of awarding punitive damages is to punish the defendant for the injury that they caused. The article informs us that damages in cases of physical injuries are tax-free under Section 104 (26 USC § 104- Compensation for injures or sickness). The only thing is that the code clearly states that emotional distress is not treated as a physical injury or physical sickness. Depression can potentially fall into this category.

Those of you who are concerned because of the potential taxation of punitive damages that are received for emotional injuries should be made aware that there are advocates for the cause. Nina Olson is a National Taxpayer Advocate who appears before Congress addressing various tax issues on behalf of the general public. In her 2009 Annual Report, she has a section titled "Exclude Settlement Payments for Mental Anguish, Emotional Distress, and Pain and Suffering from Gross Income". She argued the case for uniformity in the taxation of emotional and physical injuries.  Ms. Olson requested that tax law be amended to include emotional injuries as a tax-free entitlement. I must note that this was done with the use of evidence-based research to demonstrate the physical elements of depression and other disorders.

Advocates who present issues such as this one to Congress  are necessary. It is the only way that government officials and the general public are made aware of the evidence-based research that affects public policy. Members of the mental health community are well aware of the biological, psychological, and social issues that surround various mental health disorders such as depression. The medical community also acknowledges the biological causes of mental disorders. One online medical research source, Medline Plus, advertises that they are a trusted source for health information since it is a service provided by the U.S. National Library of Medicine. This trusted source indicates that depression is a serious medical illness that involves the brain.

So, if we were to look at the scenario that was provided by the article, it would appear that depression should be a tax-free punitive damage because it is a serious medical illness that involves the cognitive and chemical activity in the brain. My opinion is that there should be no discrimination between physical and emotional injuries that is caused by another party. If evidence is provided that supports the claim and punitive damages were awarded, than the compensation received should be tax-free. It almost seems as if the IRS is penalizing the victim for punishing the transgressor by taking a portion of what was awarded for their injuries. That seems like further victimization. 

For more information on tax law, check out the Robert W. Wood, contributor to Forbes magazine.

Thursday, October 4, 2012

The Great Debate

        I watched the debate last night to gain further insight into the political agenda of both candidates.  It was interesting to watch as Jim Lehrer attempted to keep both candidates on task.  There were issues with following the time allotted for the debate as the candidates responded to each important point of discussion.  I thought both candidates did their best in their attempts at outlining where they differed on taxes, employment, education, and Medicare and how they shared the same perspective on social security.  Both candidates outlined the flaws of the opponent’s plan while correcting the misspoken facts that were quoted during the debate. The candidates mentioned and should further explore the opportunity for both parties to work together to reach a bipartisan solution on how to serve the American people.

The purpose of the debate was to allow for the American people to gain insight into the motives, intentions, and plans of the candidates so they can decide who is the candidate of their choice during the election.  The voters who watched the debate either utilized the opportunity to gain unbiased contextual understanding of the candidate’s platform, or they utilized the opportunity to gain further support for their own political agenda. I thought the discussion of a bipartisan approach to working on critical issues was brief yet necessary because, as was pointed out during the debate, both parties have god ideas that can bring a resolution to the issues that are faced by the American people.  Both candidates demonstrate having the needs of the American people at heart; however, they differ on who should implement the necessary changes and how those changes should be implemented on the federal and/or state level.

         Governor Romney discussed his belief that the affairs of the American people can be managed on a state level without the regulation of the federal government. This approach has its’ advantages and disadvantages since it allows for people to have more state level management of issues such as education and healthcare.  This approach allows for easier facilitation of changes and the correction of mistakes without any loss of confidence in the federal institutions and federal government officials.  The disadvantage of this approach is the potential unequal balance of power that allows for the politically and economically advantaged to benefit while the disenfranchised suffer without the ability to receive the proper representation.  President Obama appears to understand this need for a balance.  He attempts to make sure the voice of the disenfranchised is heard; however, Governor Romney points out the flaws of his policies by stating how established policies can potentially hurt those who they are aimed at helping.

         The beauty of democracy is that the constitutional character of the government can change quickly when the public casts their vote, which is evident from past elections.  This election will ultimately bring those individuals who enthusiastically support the candidate of their choice to the ballots because they believe in their platform.  It will also bring those individuals who will vote out of protest of the current state of socioeconomic or sociopolitical affairs.  The success of this democratic election is contingent upon the voter’s to participate and make a difference in the current state of affairs.  It is safe to say that the American people desire a change.  The issue under consideration is who Americans believe will get the job done during this next presidential term.  Those who were invigorated by the preceding election will come to the polls this year along with those who were content with the preceding administration’s public policies.  It is important for everyone to remember that the majority rules so everyone should get out to vote to make sure that their interests are represented.  Once this is accomplished, both parties should form a consensus that they will work together to bring about a solution that will benefit all members of American society.

Future debate schedule:

Vice Presidential Debate:     October 11, 2012
                                                Center College, KY

          Second Presidential Debate: October 16, 2012  
                                                            Hofstra University, NY

          Third Presidential Debate:    October 22, 2012
                                                           Lynn University, FL

To gain more insight on the views of each candidate, check out:


To gain an overall perspective on the 2012 election, check out: