The only thing I can say for sure is that the $7,000 award for back wages will be subject to income tax. To determine if the rest of the settlement is taxable, you have to apply the following rules:
Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Include the following as ordinary income.
Interest on any award.
Compensation for lost wages or lost profits in most cases.
Punitive damages.
Amounts received in settlement of pension rights (if you did not contribute to the plan).
Damages for: Breach of contract, or Interference with business operations.
Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
Emotional distress. Damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Do not include them in your income. If the emotional distress is due to a personal injury that is unrelated to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders.
