Question

Christie sued her former employer for a back injury she suffered on the job in 2019. As a result of the injury , she was partially disabled. In 2020, she received $240,000 for her loss of future income, $160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety, and $15,000 for medical expenses. The medical expenses were deducted on here 2019 return, reducing taxable income by $12,000. What's Christie's gross income in 2020 under new tax laws?
A) $175,000
B) $172,000
C) 415,000
D) 255,000
E) $412,000

Answer 1

Answer:

option (B) 172,000

Explanation:

Given:

Amount for her loss of future income = $240,000

punitive damages = $160,000

Taxable income = $12,000

Now,

Christie must include in gross income the $160,000 of punitive damages received and the $12,000 for the previously deducted medical expenses. also,

Under tax benefit rule Medical expense recovery is included in gross.

Therefore,

Christie's Gross income in 2020 = Punitive damages + Taxes

= $160,000 + $12,000

= $172,000

Hence,

The correct answer is option (B) 172,000