According to the New York times, the case of Officer Cynthia Spina highlights a quirk in the US tax laws: plaintiffs are responsible for paying income taxes on those awards. In many states, including Illinois, lawyers fees are considered to belong to plaintiffs, and so the award and the fees are taxable, according to the report.
In Spina’s case, that means she has to turn over her entire award and lawyers’ fees and costs and will still be shy by about $100,000, her lawyer, Monica McFadden, said.
Tax law changes in 1996 made awards for some nonphysical injuries taxable.
Spina had alleged that colleagues at the Forest Preserve District of Cook County had sexually harassed her for eight years by putting pornography in her mailbox and spreading sexual rumors about her.
Last December Spina was awarded $3 million by a federal jury in Chicago in her lawsuit against her employer – an award that was $1 million more than she had requested. However, in May, Magistrate Judge Arlander Keys gave Spina a choice between a new trial and a reduced award of $300,000, because he said the jury award was excessive. Late last month Spina was also awarded lawyers’ fees of $850,000 and costs of almost $100,000.
McFadden said that she, too, is responsible for paying income taxes on any lawyers’ fee award, resulting in double taxation. She said her client had not decided whether to accept the lower award or opt for a new trial.