"Tax Consequences of Employment Discrimination Settlements," 12 Colo. Law. 1804, (November 1983).


As a general principle, any amount received in settlement of a claim of employment discrimination will be considered by the IRS to be taxable income.  In order to exclude a portion of the settlement from taxation, the taxpayer will bear the burden of proving that at least a portion of the settlement was in settlement of claims for personal injury.

In order to satisfy this burden of proof, the taxpayer should be prepared to show that:

  • A bona fide claim for personal injury was asserted as part of the litigation claim
  • The settlement agreement between the parties recognized that the personal injury claim was resolved as part of the settlement
  • The agreement allocated a reasonable portion of the settlement amount as consideration for the release of the claim.

If you would like more information, please contact Connie M. Proulx, Executive Director, at 303.244.1919 or proulx@wtotrial.com.