An update on the treatment of damages.

The Small Business Job Protection Act of 1996 includes provisions that codify that punitive damages are not excludible from income, unless they are awarded in wrongful death suits in which punitive damages are the only allowable remedies. These changes to IRC section 104(a) also limit excludability to physical injuries and diseases, making libel and privacy awards taxable. Emotional distress awards will only be excludible if linked to a physical injury or limited to medical expenses actually incurred.