Category Archives: punitive damages

Punitive Damages And Taxation

What are punitive damages

What is the definition of punitive damages

Unlike compensatory damages, punitive damages are not awarded to petitioners in order to compensate for the loss that they had to suffer because of an offence. Instead, punitive damages are awarded to reform or discourage the defendant and others from engaging in offences similar to that, which formed the basis of the lawsuit. These are meant to punish the defendant and hence the amount to be paid is usually higher than the actual losses caused following the offence.

While compensatory damages are paid to help the petitioner recover from various financial losses, punitive damages are in paid in excess and the petitioner will receive all or some portion of the punitive damage reward. Hence, even though compensatory damages are not taxable, punitive damages are. A brief discussion on “What are punitive damages” follows.

Compensatory versus Punitive damages

Compensatory or “actual” damages are the financial damages paid after carefully calculating the total amount of loss following the incident in the lawsuit. However, as explained before, punitive damages are not exact calculations. They are inflated to punish the defendant.

Taxation in Punitive Damages

The Small Business Job Protection Act of 1996 states that all punitive damages are taxable except for the punitive damages awarded in a civil court for wrongful death lawsuit cases. This is to ignore the involvement of financial deductions from the damages awarded following the death of a person. It would be unethical and unjustified to take tax from a case that involves the loss of human life after all.

Taxation in Corporate cases


What are the different types of damages in law

In 2010, the Obama Administration proposed a controversial amendment to the punitive damage taxation law, which stated that corporate companies would not be able to receive tax deductions on the punitive damages they pay to a petitioner. This caused an uproar from companies who claimed that these amounts were used for helping the society in various ways. They stressed on the hardships they were already facing due to recession.

Taxation for Plaintiffs

The punitive damages received by a petitioner following injury or sickness cannot be taxed. This is owing to the fact that physical harm and pain caused to a person cannot be compensated by money. This means that on plain humanitarian grounds, the person who has suffered damages be it emotional or financial, should not be taxed.

Hope the discussion on “What are punitive damages” was easy to understand. Refer law books for the proper definitions of and amendments to these laws.

Circumstances Where Punitive Damages May Be Invoked

What are punitive damages, punitive damage claims

When can punitive damages be claimed

As followers of law and readers of newspaper, we come across instances where a lawsuit has been filed against a person or an organization. The charges can be of any type and most of them would be aimed at seeking compensation from the accused. Be it a civil or criminal lawsuit, compensation claims are an integral aspect of law. However, there are times when things might go beyond such claims and would be intended to seek suitable punishment for the act of crime committed by the accused. But there are various aspects to such a lawsuits and it is vital that you understand the nuances of lawsuits seeking such sentences.

What are punitive damages?

Punitive damages are the ones that go beyond just compensation claims and usually takes place when things gets personal. Usually, punitive damages are claimed on top of the general compensation claims which accompany most lawsuits.

So when does a lawsuit seeking punitive damage award? They are usually awarded when the actions of the accused points towards gross and willful negligence aimed at causing injury (of high degree) or death to the victim. Now this is a bit of a complex law. So, if you actually wish to win such a lawsuit, it would be advisable to know what are punitive damages and what are its effects.

When can they be used?

Punitive damages are usually awarded when the accused or defendant is found to have indulged in morally culpable actions that are intended to cause severe harm to the victim or for the society in general.

What are punitive damages, punitive damage claims

Punitive damages are aimed at punishing the accused

It’s not just intentional action that qualifies for punitive damages , reckless or gross negligence which causes physical or emotional trauma to the claimant also invite these charges.

However, neither can one claim for punitive damages alone nor can one claim for it unless the basic charges have been proved right. Punitive damages and punishments are awarded only on top of the normal damage claims and must be specifically mentioned in the lawsuit. No matter how serious the case is, New York law for example doesn’t provide for punitive damages by default in its lawsuits and the claimant must mention punitive damage claims on top of the damage claims in their lawsuit to pursue lawsuit for punishing the defendant. Punitive damages are awarded only for those where the sentence should serve as an example for society in order to prevent such heinous crimes from repeating again.