As a general rule, ACTUAL damages are tax free, because they are simply recompense for harm you sustained in a way measurable in dollars and cents. You get into a car accident and py $1500 to fix your car. You sue the other driver and collect the 41500 back. Not taxable, The tax deductability of the expense you incurred has nothing to do with it.
STATUTORY damages are generally taxable because they meet none of the characteristics in the above paragraph.
As far as structuring the language of the settlement is concerned, that only works when the suit is over expenses to be incurred in the future that would constitute a measurable, qual\ntifiable damage, like future medical expenses.
In teh auto accident, your child in in teh rear seat in an approved and properly used child safety seat and in the accident and as direct result of the other party's negligence suffers permanent and irreparable brain damage. The cost of your child's future medical and care expenses cannot be known at the time you sue, so the settlement encompasses all past, present and FUTURE medical expenses. Not taxable.
