How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lane Your Own Question
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10097
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

I received an out of court settlement wrongful termination.

Customer Question

I received an out of court settlement for a wrongful termination. The total amour awarded was $450K. My lawyer received half of that (225K), paid directly to him by the employer. I then received $45K for lost wages, which I filed out all tax forms for W-2 etc and was taxed on that amount about 45% which I thought was a little high.
My main question is , how much tax could I expect to pay on the remaining $180K. I make over 130K annually now in my current job, is this added to that income? Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

...

That's right, it's simply added to your other income in the household for the year, as with any ordinary income, (not capital gains or dividends, in other words).

IRA distributions, settlements and awards for anything other than personal injury, sickness or death, gambling winnings, ALL are just added to income for the year received.

...

And because they are added to the other income that's already there, they're taxed at the your marginal rate.

...

On the good news side, attorney's fees for a settlement like this (anything associated with collecting an income or pursuing business profits, even collecting a tax refund in a tax case) are deductible.

...

But back to the income side of things, if that W-2 had state taxes withheld, then (becasue, again, this is incremental income for the year received) that may not BE overwithholding ... and if it is, it will only help to offset the tax on the the income for the rest of the settlement.

...

Let me now if you have questions...

...

Lane

...

Expert:  Lane replied 1 year ago.
P.S.
Generally, you deduct attorney’s fees as an itemized miscellaneous deduction on Schedule A of your Form 1040 tax return.
You may not be able to deduct all of your fees, though. Miscellaneous deductions are limited by the two percent rule:
You can deduct only the amount of your miscellaneous deductions that’s more than two percent of your adjusted gross income (AGI) – the amount you entered on line 37 of your 1040.
Hope this helps
Lane
If this HAS helped, I'd appreciate a positive rating, by clicking or touching, the smiles or stars on your screen ...   that's the ONLY WAY I'm credited for the work here.

Related Tax Questions