A compensatory payment for physical injuries or physical sickness is tax-free under Section 104. However, the Tax Court has ruled that an employee suit may be partially tax-free if the employee has physical sickness from working conditions. In one case, stress at work produced a heart attack, that was sensibly viewed as physical sickness. In fact, it is a physical sickness involving measurable changes in the physical makeup of the brain and nervous system. Taxpayer Advocate Nina Olson has advocated for treating PTSD as physical sickness.

Source: Forbes February 24, 2017 13:52 UTC