Tax Legal Services · Primary-source case analysis

United States v. Burke: Title VII Backpay Was Not Excluded from Income

By Aneeta Mishra and Timothy Chan

Published May 2, 2026

United States v. Burke illustrates why the tax characterization of a litigation recovery depends on the legal rights and remedies producing it, as well as the tax statute in force for the year received.

The settlement resolved discriminatory-pay claims

Female employees settled a Title VII action alleging sex-based pay discrimination. The recovery represented backpay, and the dispute was whether it could be excluded as damages received on account of personal injuries under the version of section 104(a)(2) then applicable.

The Court examined the remedial scheme

At the time, Title VII primarily authorized backpay and equitable relief rather than the broad compensatory and punitive damages associated with traditional tort remedies. The Court therefore concluded that the underlying cause of action did not redress a tort-type personal injury for purposes of the exclusion.

The backpay remained taxable

Because the claim did not satisfy the then-governing tort-type-rights requirement, the settlement proceeds were included in gross income. The Court did not adopt a rule that every employment recovery receives identical tax treatment.

Later law changes the present analysis

Congress expanded Title VII remedies in 1991 and amended section 104(a)(2) in 1996. Present-day treatment must therefore use the current statute, identify whether damages are tied to physical injury or sickness, and allocate wages, interest, fees, penalties, and other components separately.

Key takeaways

• Start with the governing tax-year version of section 104.
• Identify the claim and the remedies it authorizes.
• Determine what each payment component replaces.
• Do not treat Burke's historical statutory analysis as a shortcut for current law.