Internal Revenue Code Section 104 provides that "gross income does not include the amount of any damages (other than punitive damages) recieved...on account of personal physical injuries or physical sickness." Accordingly the economic damages to be recieved by the injured party should not constitute taxable income.
In contrast, (i) the income that the injured party would have earned(and which serves as the basis for all economic damages) and (ii) the interest income that the injured party will earn on the damages award would be fully taxable.
To avoid any windfall that would otherwise result with the difference in tax treatment economic damages should be adjusted for taxes. Nevertheless some jurisdictions place restrictions on whether tax impacts can be considered in the calculation of economic damages.