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Hello and thank you for using Just Answer.
It sounds like they will be issuing you a W2 for the 1/3 that had with=holdings attached. This will be included with your tax return. It is the wages that you were missing due to the claim. The 1/3 to the lawyer is his problem. He/she will need to report that amount on their return.
The remaining amount that was paid to you most probably is th e injury portion and it is not taxable to you.
To make sure that my assumptions are correct please request that your lawyer explain the settlement to you.
Thank you again,
"To make sure that my assumptions are correct please request that your lawyer explain the settlement to you."
I did. He said that I needed to consult with a Tax Expert as he was not. Hence, I asked you. So, please tell me what assumption is in question that might result in invalidating your answer.
I advised you to speak with your attorney in case either payment to you was spelled out any differently. The attorney also was in receipt of the settlement agreement from the other party.
I stand by my first answer and that is that the payment showing withholding will be taxable because that is considered wages that you missed and they would have been taxable to you anyway. The other payment to you is considered non taxable because it is for injury. The lawyer's amount is the lawyer's tax problem and should not be included with your information for income or deductions.