If you have a discrimination settlement from an employer, it is fully taxable income and should be reported on a W-2 and if it increased retirement pay, the retirement pay portion should be reported on your 1099-R. There is no type of tax break for this type of settlement.
"Employment-related lawsuits may arise from wrongful discharge or failure to honor contract obligations. Damages received to compensate for economic loss, for example lost wages, business income and benefits, are not excludable form gross income unless a personal physical injury caused such loss.
Discrimination suits for age, race, gender, religion, or disability can generate compensatory, contractual and punitive awards, none of which are excludible under IRC Section104(a)(2)." Tax implications of settlements and judgments
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