I recently won a lawsuit for libel and was awarded both compensatory and punitive damages. I believe that the punitive damages are taxable and the compensatory are not. Is this correct?

What you said is generally correct.

As long as the compensatory damages are for injury and suffering, they are tax-free. If, however, they are supposed to replace lost income (such as lost wages), then the compensatory damages may be taxable as well.

Thanks AtlantaTaxExpert!

How would you define "injury" as it applies here. Is it only physical injury or would it include damage to my professional reputation?

Nevermind...

After looking over some papers that my attorney gave me, I see where he spelled this out for me. Some of the compensatory award is taxable since it was for loss of income from a specific business deal that was lost as a direct result of the libel. The damages for harm to my professional reputation are not taxable.

Great! Glad to help!