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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7530
Experience:  15years with H & R Block. Divisional leader, Instructor
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COMPENSATION PAID TO A SEAMAN UNDER THE JONES ACT IS IT SUBJECT

Resolved Question:

COMPENSATION PAID TO A SEAMAN UNDER THE JONES ACT IS IT SUBJECT TO INCOME TAX FICA AND IS IT REPORTED ON W2
Submitted: 4 years ago.
Category: Tax
Expert:  Robin D. replied 4 years ago.

HelloCustomer

Thank you for using Just Answer.

I was not certain when I first read your question whether you were looking to report the amount as the payer or the payee.

  • A plaintiff with an employment-related claim will usually have to include the full amount of any settlement or damage award as taxable income, irrespective of whether any portion is paid directly to the plaintiff's attorney.
  • The plaintiff may then claim a federal income tax deduction for the amount of his or her attorney fees.
  • The full amount of a settlement or damage award will probably have to be treated as employee "wages." This will require the employer to withhold income tax, to withhold and pay federal social security taxes (FICA taxes), to pay federal unemployment taxes (FUTA taxes) and to report the payments on IRS Form W-2.

If you received a W2 in relation to the amount you received based on wages that you missed due to your injury then it is due to the above which came about based on a Supreme Court case, a new federal statute, and two IRS Revenue Rulings that affected the law governing the taxation of settlements and damage awards for employment-related claims.

 

Basic Rules on Taxation of Settlements and Damage Awards

Under current law, the general rule is that the plaintiff in an employment-related case is subject to income tax on the entire amount of any settlement or damage award, except for any portion that is essentially reimbursement for medical costs associated with personal physical injury or sickness.Under this rule, damages for pain and suffering, emotional distress, and punitive or exemplary damages are taxable.

 

I sincerely XXXXX XXXXX this information is helpful to you but suggest if you have further concerns about this subject that you speak with your attorney for clarification on the exact nature of your case,



Edited by Robin D on 1/28/2010 at 3:42 PM EST
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7530
Experience: 15years with H & R Block. Divisional leader, Instructor
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