TITLE 26--INTERNAL REVENUE CODE
Subtitle A--Income Taxes
CHAPTER 1--NORMAL TAXES AND SURTAXES
Subchapter B--Computation of Taxable Income
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
Sec. 104. Compensation for injuries or sickness
(a) In general
Except in the case of amounts attributable to (and not in excess of)
deductions allowed under section 213 (relating to medical, etc.,
expenses) for any prior taxable year, gross income does not include--
(1) amounts received under workmen's compensation acts as
compensation for personal injuries or sickness;
(2) the amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether as lump sums or
as periodic payments) on account of personal physical injuries or
physical sickness;
(3) amounts received through accident or health insurance (or
through an arrangement having the effect of accident or health
insurance) for personal injuries or sickness (other than amounts
received by an employee, to the extent such amounts (A) are
attributable to contributions by the employer which were not
includible in the gross income of the employee, or (B) are paid by
the employer);
(4) amounts received as a pension, annuity, or similar allowance
for personal injuries or sickness resulting from active service in
the armed forces of any country or in the Coast and Geodetic Survey
or the Public Health Service, or as a disability annuity payable
under the provisions of section 808 of the Foreign Service Act of
1980; and
(5) amounts received by an individual as disability income
attributable to injuries incurred as a direct result of a
terroristic or military action (as defined in section 692(c)(2)).
For purposes of paragraph (3), in the case of an individual who is, or
has been, an employee within the meaning of section 401(c)(1) (relating
to self-employed individuals), contributions made on behalf of such
individual while he was such an employee to a trust described in section
401(a) which is exempt from tax under section 501(a), or under a plan
described in section 403(a), shall, to the extent allowed as deductions
under section 404, be treated as contributions by the employer which
were not includible in the gross income of the employee. For purposes of
paragraph (2), emotional distress shall not be treated as a physical
injury or physical sickness. The preceding sentence shall not apply to
an amount of damages not in excess of the amount paid for medical care
(described in subparagraph (A) or (B) of section 213(d)(1)) attributable
to emotional distress.
(b) Termination of application of subsection (a)(4) in certain cases
(1) In general
Subsection (a)(4) shall not apply in the case of any individual
who is not described in paragraph (2).
(2) Individuals to whom subsection (a)(4) continues to apply
An individual is described in this paragraph if--
(A) on or before September 24, 1975, he was entitled to
receive any amount described in subsection (a)(4),
(B) on September 24, 1975, he was a member of any
organization (or reserve component thereof) referred to in
subsection (a)(4) or under a binding written commitment to
become such a member,
(C) he receives an amount described in subsection (a)(4) by
reason of a combat-related injury, or
(D) on application therefor, he would be entitled to receive
disability compensation from the Veterans' Administration.
(3) Special rules for combat-related injuries
For purposes of this subsection, the term ``combat-related
injury'' means personal injury or sickness--
(A) which is incurred--
(i) as a direct result of armed conflict,
(ii) while engaged in extrahazardous service, or
(iii) under conditions simulating war; or
(B) which is caused by an instrumentality of war.
In the case of an individual who is not described in subparagraph
(A) or (B) of paragraph (2), except as provided in paragraph (4),
the only amounts taken into account under subsection (a)(4) shall be
the amounts which he receives by reason of a combat-related injury.
(4) Amount excluded to be not less than veterans' disability
compensation
In the case of any individual described in paragraph (2), the
amounts excludable under subsection (a)(4) for any period with
respect to any individual shall not be less than the maximum amount
which such individual, on application therefor, would be entitled to
receive as disability compensation from the Veterans'
Administration.
(c) Application of prior law in certain cases
The phrase ``(other than punitive damages)'' shall not apply to
punitive damages awarded in a civil action--
(1) which is a wrongful death action, and
(2) with respect to which applicable State law (as in effect on
September 13, 1995 and without regard to any modification after such
date) provides, or has been construed to provide by a court of
competent jurisdiction pursuant to a decision issued on or before
September 13, 1995, that only punitive damages may be awarded in
such an action.
This subsection shall cease to apply to any civil action filed on or
after the first date on which the applicable State law ceases to provide
(or is no longer construed to provide) the treatment described in
paragraph (2).
(d) Cross references
(1) For exclusion from employee's gross income of employer
contributions to accident and health plans, see section 106.
(2) For exclusion of part of disability retirement pay from
the application of subsection (a)(4) of this section, see
section 1403 of title 10, United States Code (relating to career
compensation laws).
(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 86-723, Sec. 51, Sept. 8,
1960, 74 Stat. 847; Pub. L. 87-792, Sec. 7(d), Oct. 10, 1962, 76 Stat.
829; Pub. L. 94-455, title V, Sec. 505(b), (e)(1), title XIX,
Sec. 1901(a)(18), Oct. 4, 1976, 90 Stat. 1567, 1568, 1766; Pub. L. 96-
465, title II, Sec. 2206(e)(1), Oct. 17, 1980, 94 Stat. 2162; Pub. L.
97-473, title I, Sec. 101(a), Jan. 14, 1983, 96 Stat. 2605; Pub. L. 101-
239, title VII, Sec. 7641(a), Dec. 19, 1989, 103 Stat. 2379; Pub. L.
104-188, title I, Sec. 1605(a)-(c), Aug. 20, 1996, 110 Stat. 1838; Pub.
L. 104-191, title III, Sec. 311(b), Aug. 21, 1996, 110 Stat. 2053; Pub.
L. 107-134, title I, Sec. 113(a), Jan. 23, 2002, 115 Stat. 2435.)
References in Text
Section 808 of the Foreign Service Act of 1980, referred to in
subsec. (a)(4), is Pub. L. 96-465, title I, Sec. 808, Oct. 17, 1980, 94
Stat. 2110, which is classified to section 4048 of Title 22, Foreign
Relations and Intercourse.
Amendments
2002--Subsec. (a)(5). Pub. L. 107-134 substituted ``a terroristic or
military action (as defined in section 692(c)(2)).'' for ``a violent
attack which the Secretary of State determines to be a terrorist attack
and which occurred while such individual was an employee of the United
States engaged in the performance of his official duties outside the
United States.''
1996--Subsec. (a). Pub. L. 104-188, Sec. 1605(b), in closing
provisions, substituted ``For purposes of paragraph (2), emotional
distress shall not be treated as a physical injury or physical sickness.
The preceding sentence shall not apply to an amount of damages not in
excess of the amount paid for medical care (described in subparagraph
(A) or (B) of section 213(d)(1)) attributable to emotional distress.''
for ``Paragraph (2) shall not apply to any punitive damages in
connection with a case not involving physical injury or physical
sickness.''
Subsec. (a)(2). Pub. L. 104-188, Sec. 1605(a), amended par. (2)
generally. Prior to amendment, par. (2) read as follows: ``the amount of
any damages received (whether by suit or agreement and whether as lump
sums or as periodic payments) on account of personal injuries or
sickness;''.
Subsec. (a)(3). Pub. L. 104-191 inserted ``(or through an
arrangement having the effect of accident or health insurance)'' after
``accident or health insurance''.
Subsecs. (c), (d). Pub. L. 104-188, Sec. 1605(c), added subsec. (c)
and redesignated former subsec. (c) as (d).
1989--Subsec. (a). Pub. L. 101-239 inserted at end ``Paragraph (2)
shall not apply to any punitive damages in connection with a case not
involving physical injury or physical sickness.''
1983--Subsec. (a)(2). Pub. L. 97-473 substituted ``whether by suit
or agreement and whether as lump sums or as periodic payments'' for
``whether by suit or agreement''.
1980--Subsec. (a)(4). Pub. L. 96-465 substituted reference to
section 808 of the Foreign Service Act of 1980 for reference to section
831 of the Foreign Service Act of 1946.
1976--Subsec. (a)(4). Pub. L. 94-455, Sec. 1901(a)(18)(A), struck
out ``; 60 Stat. 1021'' after ``(22 U.S.C. 1081''.
Subsec. (a)(5). Pub. L. 94-455, Sec. 505(e)(1), added par. (5).
Subsecs. (b), (c). Pub. L. 94-455, Sec. 505(b), added subsec. (b),
redesignated former subsec. (b) as (c) and, as so redesignated,
Sec. 1901(a)(18)(B), substituted ``1403 of title 10, United States Code
(relating to career compensation laws)'' for ``402(h) of the Career
Compensation Act of 1949 (37 U.S.C. 272(h))''.
1962--Subsec. (a). Pub. L. 87-792 inserted sentence requiring
contributions made on behalf of an individual who is, or has been, an
employee within the meaning of section 401(c)(1), while he was such an
employee to a trust which is exempt from tax, or under a plan described
in section 403(a), to be treated as contributions by the employer which
were not includible in the gross income of the employee.
1960--Subsec. (a)(4). Pub. L. 86-723 provided for exclusion from
gross income of amounts received as a disability annuity payable under
the provisions of section 831 of the Foreign Service Act of 1946, as
amended.
Change of Name
Reference to Veterans' Administration deemed to refer to Department
of Veterans Affairs pursuant to section 10 of Pub. L. 100-527, set out
as a Department of Veterans Affairs Act note under section 301 of Title
38, Veterans' Benefits.
Coast and Geodetic Survey consolidated with National Weather Bureau
in 1965 to form Environmental Science Services Administration by Reorg.
Plan No. 2 of 1965, eff. July 13, 1965, 30 FR 8819, 79 Stat. 1318.
Environmental Science Services Administration abolished in 1970 and its
personnel, property, records, etc., transferred to National Oceanic and
Atmospheric Administration by Reorg. Plan No. 4 of 1970, eff. Oct. 3,
1970, 35 FR 15627, 84 Stat. 2090. By order of Acting Associate
Administrator of National Oceanic and Atmospheric Administration, 35 FR
19249, Dec. 19, 1970, Coast and Geodetic Survey redesignated National
Ocean Survey. See notes under section 311 of Title 15, Commerce and
Trade.
Effective Date of 2002 Amendment
Pub. L. 107-134, title I, Sec. 113(c), Jan. 23, 2002, 115 Stat.
2435, provided that: ``The amendments made by this section [amending
this section and section 692 of this title] shall apply to taxable years
ending on or after September 11, 2001.''
Effective Date of 1996 Amendments
Section 311(c) of Pub. L. 104-191 provided that: ``The amendments
made by this section [amending this section and section 162 of this
title] shall apply to taxable years beginning after December 31, 1996.''
Section 1605(d) of Pub. L. 104-188 provided that:
``(1) In general.--Except as provided in paragraph (2), the
amendments made by this section [amending this section] shall apply to
amounts received after the date of the enactment of this Act [Aug. 20,
1996], in taxable years ending after such date.
``(2) Exception.--The amendments made by this section shall not
apply to any amount received under a written binding agreement, court
decree, or mediation award in effect on (or issued on or before)
September 13, 1995.''
Effective Date of 1989 Amendment
Section 7641(b) of Pub. L. 101-239 provided that:
``(1) In general.--Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall apply to
amounts received after July 10, 1989, in taxable years ending after such
date.
``(2) Exception.--The amendment made by subsection (a) shall not
apply to any amount received--
``(A) under any written binding agreement, court decree, or
mediation award in effect on (or issued on or before) July 10, 1989,
or
``(B) pursuant to any suit filed on or before July 10, 1989.''
Effective Date of 1980 Amendment
Amendment by Pub. L. 96-465 effective Feb. 15, 1981, except as
otherwise provided, see section 2403 of Pub. L. 96-465, set out as an
Effective Date note under section 3901 of Title 22, Foreign Relations
and Intercourse.
Effective Date of 1976 Amendment
Amendment by section 505(b) of Pub. L. 94-455 applicable to taxable
years beginning after Dec. 31, 1975, see section 508 of Pub. L. 94-455,
set out as a note under section 3 of this title.
Section 505(e)(2) of Pub. L. 94-455 provided that: ``The amendments
made by this subsection [amending this section] shall apply to taxable
years beginning after December 31, 1976.''
Amendment by section 1901(a)(18)(A) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this
title.
Effective Date of 1962 Amendment
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a note
under section 22 of this title.
Effective Date of 1960 Amendment
Section 56(e) of Pub. L. 86-723 provided that: ``The amendment made
by section 51 of this Act [amending this section] shall be effective
with respect to taxable years ending after the date of enactment of this
Act [Sept. 8, 1960].''
Transfer of Functions
Secretary of Health, Education, and Welfare redesignated Secretary
of Health and Human Services by section 3508 of Title 20, Education.
Functions of Public Health Service, Surgeon General of Public Health
Service, and all other officers and employees of Public Health Service,
and functions of all agencies of or in Public Health Service transferred
to Secretary of Health, Education, and Welfare by 1966 Reorg. Plan No.
3, 31 F.R. 8855, 80 Stat. 1610, effective June 25, 1966, set out in the
Appendix to Title 5, Government Organization and Employees.
Section Referred to in Other Sections
This section is referred to in sections 22, 105, 130, 5891, 6051,
7701 of this title; title 10 section 1403.
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 7, 2003]
[Document not affected by Public Laws enacted between
January 7, 2003 and February 12, 2003]
[CITE: 26USC104]
Link to U.S. Government Source Document
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