The link below will take you to an informative article on the tax consequences of judgments and settlements. Taxation of judgments and settlments varies depending on the type of case and the chacter of the damages. For instance back pay in an employment lawsuit would be taxed as wages and both income and FICA taxes would apply. As noted by author, settlements can be structured to reduce taxes depending on the type of case.
http://www.forbes.com/2010/04/29/tax-legal-damages-employment-injury-personal-finance-robert-wood.html
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