1.26 Ark. Code R. 51-404(b)(15)
Compensatory and punitive damages are includable in gross income unless the damages are received on account of a personal physical injury or physical sickness. If an action has its origin in a physical injury or physical sickness, then all damages (other than punitive damages) that flow from that injury or sickness are treated as payments received on account of physical injury or physical sickness, whether or not the recipient of the damages is the injured party. However, punitive damages are includable in gross income even if they are received on account of a personal physical injury or physical sickness. IRC Sec. 104(a)(2).
The taxability of damages remains the same whether the damages are received as a settlement or jury award.
Example: damages (other than punitive damages) received by an individual on account of a claim for loss of consortium due to the physical injury or physical sickness of that individual's spouse are excludable from gross income.
1.26 Ark. Code R. 51-404(b)(15)