Have a Tax Question? Ask a Tax Expert
Settlement that you will receive still considered your income....
The question is if it would be taxable?
The IRS provides - see publication 525- http://www.irs.gov/pub/irs-pdf/p525.pdf
Back pay awards. Include in income amounts you are awarded in a settlement or judgment for back pay. These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. They should be reported to you by your employer on Form W-2.
As this is your supplemental wages - your employer will likely withheld federal income tax at 25% tax rate.
Your actual tax would depend on your total income, filing status, deductions, etc.
The maximum federal tax rate is 35% for taxable income above $357,700 (if you are single)
annual income- $50,100
filing status- single, 1 (getting married in two weeks- can always switch from 1 to 0)
which filing status benfits this situation?
so what option is best for me?
you stated 25% and I stated they were taking taxes at 36% on option #1
is there a % that is required or is it open tofor them to pick a number?
As you are getting married and will be married on the last day of the year - for tax purposes you will be considered married for the whole year and if you plan to file joint tax return - we need to know estimated income of your-to-be-a-spouse.
If you file as married filing separate - your estimated taxable income will be
$50,100 - $5450(assuming you use standard deduction) - $3500(personal exemption) = $41150.
You will be in 25% tax bracket - for taxable income between $32,550 and $78,850
With additional income of $20,000 - you still will stay in the same tax bracket - and eventually you will pay 25% or $5000 in federal income tax.
This income will likely be considered as wages and social security and Medicare taxes will be due - total 7.65%.
As this is not your regular - but supplemental wages - employers normally are required to withhold 25% regardless of your tax bracket and W-4 form filing.
If your situation - it looks as that is exact rate you would pay federal income tax on that amount.
I am not sure why your employer is taking 36%. But is they do and you would overpay taxes - you will eventually get a large refund at the tax time.
The State of Nevada does not have a state income tax - so there is nothing for you to worry from that side.