What happens after arbitration depends on which side of the award you are on. The winning party has to ask a court to confirm the award before it can be collected, and that request has to be filed within one year. The losing party has only three months to challenge the award, and the grounds for doing so are narrow. Everything else that follows, including interest, taxes, and cross-border enforcement, flows from those two deadlines.
The Award Itself Does Not Collect Anything
The arbitrator’s final decision is a written document called an award. It names the prevailing party and sets out what the other side owes, usually a dollar figure and sometimes an order to do or stop doing something. That piece of paper is the end of the arbitration. It is not yet enforceable.
Most arbitration clauses in commercial and employment contracts make the process binding, meaning both sides agreed in advance to accept the result. Non-binding arbitration exists, but the enforcement and challenge rules below apply to binding awards, which is what nearly every reader is dealing with.
Confirming the Award: The Winner’s Next Step
A party holding an arbitration award cannot garnish wages, levy a bank account, or place a lien on property. None of those tools exist until a court converts the award into a judgment. The mechanism for doing that is a petition (sometimes called a motion) to confirm the award. Under the Federal Arbitration Act, a court that receives such a petition must confirm the award unless it finds a valid reason to vacate, modify, or correct it.1Office of the Law Revision Counsel. 9 U.S. Code 9 – Award of Arbitrators; Confirmation; Jurisdiction; Procedure
The deadline is one year from the date the award was made. Some courts treat that as a hard cutoff. Wait longer and the award can become unenforceable, no matter how clearly the arbitrator ruled in your favor.
Once a court confirms the award, it becomes a judgment with the same force as any other court judgment. From that point, the standard collection tools open up: wage garnishment, bank levies, property liens, and the rest.
Interest Starts Running on the Judgment
Once the confirmed award becomes a federal court judgment, post-judgment interest begins accruing automatically under federal law. The rate is tied to the weekly average one-year constant maturity Treasury yield published by the Federal Reserve for the week before the judgment was entered, and it compounds annually. The rate therefore depends on when the judgment is entered. Interest runs from entry until the judgment is paid.
If the arbitrator included pre-award interest in the decision itself, covering the stretch between the harm and the award, that amount is folded into the confirmed judgment. For the loser, delay keeps adding to the bill. For the winner, prompt confirmation starts the compounding sooner.
Challenging the Award: The Losing Party’s Three-Month Window
Courts do not reopen arbitrations to check whether the arbitrator read the contract correctly or weighed the evidence the way a judge would have. The Federal Arbitration Act lists only a few narrow grounds for vacating an award, and all of them target problems with the process rather than the outcome:
- Corruption, fraud, or undue means, such as one party rigging the proceeding with fabricated evidence that affected the result.
- Evident partiality, such as an undisclosed financial relationship between the arbitrator and one of the parties.
- Arbitrator misconduct, such as refusing to postpone a hearing for a legitimate reason or refusing to hear relevant evidence, in a way that prejudiced a party.
- Exceeding powers, meaning the arbitrator decided an issue the parties never submitted, or failed to produce a definitive award on the issues that were submitted.
The Supreme Court held in Hall Street Associates v. Mattel that these statutory grounds are the exclusive basis for challenging an award under the FAA. Parties cannot add new grounds by writing them into their arbitration agreement.
Some federal circuits still recognize “manifest disregard of the law,” where the arbitrator knowingly ignored a clearly applicable rule, as a vacatur ground, usually by treating it as a flavor of the “exceeded powers” category. Other circuits have rejected it. Relying on manifest disregard alone is a gamble that turns on which court hears the case.
How the Challenge Gets Filed
A party challenging an award files a motion to vacate, typically in the federal district court for the district where the award was made. The motion has to identify the specific statutory ground and present supporting evidence.
The deadline is unforgiving. Notice of the motion must be served on the other side within three months after the award is delivered. Miss that window and the right to challenge disappears, however strong the argument might have been. That three-month clock begins the moment the award lands, so the losing party has to decide fast whether to pay, negotiate, or fight.
The judge does not retry the dispute. The only question is whether the arbitration process was flawed in one of the ways the statute describes. If the motion fails, the court confirms the award. If it succeeds, the court vacates the award and may direct a rehearing before the arbitrators if the original time limit for making the award has not expired. In practice, vacatur often means starting over with a new panel, which is costly and slow.
When Modification Is the Right Move Instead of Vacatur
Not every error justifies throwing out the whole award. A court can modify or correct an award in three situations:
- A miscalculation of figures, or a mistake in describing a person, property, or other item named in the award.
- A ruling on something the parties never submitted, provided that extra ruling does not affect the merits of what was properly submitted.
- A defect in form that does not change the substance.
The same three-month service deadline applies. A court granting modification adjusts the award to carry out the arbitrator’s intent rather than sending the parties back to the beginning.
Arbitration Was Private; Court Is Not
Many parties pick arbitration precisely because it stays out of public view. That changes the moment anyone files to confirm, vacate, or modify. The award and the surrounding filings go into the court record, and federal courts recognize a common-law presumption of public access to judicial records. Overcoming that presumption usually requires showing a clearly defined and serious injury from disclosure, which is a high bar.
If the loser is likely to pay voluntarily, the winner may want to think twice before racing to court. Sealing is possible but granted selectively.
Awards Issued Abroad
If the award was issued outside the United States and needs to be enforced here, or was issued here and needs to be enforced abroad, the framework is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention. More than 170 countries are parties, and the United States has implemented it through Chapter 2 of the Federal Arbitration Act.
To enforce a foreign award in a U.S. court, the party seeking enforcement must produce the original award (or a certified copy) and the original arbitration agreement, with certified translations if the documents are not in English. The court must recognize the award as binding unless the opposing party proves one of a limited set of defenses, such as lack of proper notice of the arbitration, a ruling outside the scope of the agreement, or the award having been set aside where it was issued. The Convention also bars member countries from imposing conditions on foreign awards more burdensome than those applied to domestic ones.
Tax Treatment of the Money You Receive
The IRS treats arbitration awards the same as court judgments. What matters is what the award compensates for, not where it came from.
Damages for personal physical injuries or physical sickness are excluded from gross income if the damages are compensatory rather than punitive, and emotional distress damages that flow directly from a physical injury get the same treatment. If you previously deducted medical expenses tied to the injury, the portion of the award covering those expenses may be taxable to the extent the deduction gave you a tax benefit.
Awards for breach of contract, employment disputes, emotional distress not tied to a physical injury, and similar non-physical claims are generally taxable as ordinary income. Medical expenses you paid for emotional distress treatment and did not previously deduct can reduce the taxable amount, but the remainder is taxable. Punitive damages are always taxable, even when attached to an otherwise tax-free physical injury recovery.
For employment discrimination and civil rights claims, attorney fees and court costs can be deducted above the line, up to the amount of the award included in gross income that year. For other claim types, the miscellaneous itemized deduction that once covered legal fees was suspended by the Tax Cuts and Jobs Act for 2018 through 2025. That suspension is scheduled to expire for 2026, which would restore the deduction unless Congress extends it.
Awards of $600 or more paid by a business are generally reported on Form 1099-MISC, with payments to attorneys reported separately in Box 10. Keep records of how the award breaks down between taxable and non-taxable components, because the IRS will not sort that out for you.