My husband was terminated wrongfully from the US Postal Service after he was physically injured on the job. He filed a lawsuit and won. He received two settlement checks. One that was for actual back payment income which was taxed and reported on a W-2. The 2nd payment had no taxes taken out, and was reported on a 1099-MISC. My question is, is this 2nd payment taxable? Do I need to claim it as income on our tax return this year? I was reading the rules on the IRS website and it sounds like if the damages paid were the result of a personal physical injuries (which they were) they can be excluded from being claimed. I want to make sure I am reading that correctly. My husband's attorney seems to believe this as well.
https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments
