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I am in a federal ussera case, will i be liable for taxes on…

Customer Question
I am in a...

I am in a federal ussera case, will i be liable for taxes on an amount settled out of court

Lawyer's Assistant: Since laws vary from place to place, what state is this in?

Missouri

Lawyer's Assistant: Is the employment agreement "at will," union, full time or part time?

Its federal case though

Submitted: 5 months ago.Category: Employment Law
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Answered in 6 minutes by:
11/14/2017
Employment Lawyer: legalgems, Lawyer replied 5 months ago
legalgems
legalgems, Lawyer
Category: Employment Law
Satisfied Customers: 12,570
Experience: Just Answer consultant at Self employed
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Hello! I will be reviewing your question and posting a response momentarily; if you have any follow up questions please respond here. Thanks!

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Employment Lawyer: legalgems, Lawyer replied 5 months ago

Settlements are typically taxable unless there is a code that provides otherwise. The IRS will look to see what the purpose of the settlement is, and if it is for back wages then it is generally taxable; the below paragraph is from an IRS advisory:

If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination or involuntary termination, the portion of the proceeds that is for lost wages (i.e., severance pay, back pay, front pay) is taxable wages and subject to the social security wage base and social security and Medicare tax rates in effect in the year paid. These proceeds are subject to employment tax withholding by the payor and should be reported by you as ‘Wages, salaries, tips, etc.” on line 7 of Form 1040.

https://www.irs.gov/pub/irs-pdf/p4345.pdf

Also please see:

In order to determine whether any portion of damages are excludable from gross income, the Internal Revenue Service (“IRS”) will look to the nature of the claim that was the basis for the settlement. According to the IRS, characterization of the settlement must be consistent with the relief that would have been available if the claims had not been settled. Office of Chief Counsel, I.R.S. Memorandum, Income and Employment Tax Consequences and Proper Reporting of Employment-Related Judgments and Settlements, PMTA2009-025 (October 22, 2008).2 In general, in order to be excluded from income, the amounts received must be due to personal physical injuries or physical sickness, or must be reimbursed expenses for medical treatment for emotional distress. 26 U.S.C. §104(a)(2); see Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995). Emotional distress alone is not considered a physical injury or physical sickness that may be excluded from gross income. 26 U.S.C. §104(a)(2).

https://www.agc.org/sites/default/files/Galleries/labor_member_files/State%20of%20the%20Law%20on%20Settlement%20Agreements...and%20Tips%20to%20Make%20Them%20Stick.pdf

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Employment Lawyer: legalgems, Lawyer replied 5 months ago

Hello again; just checking in to see how things worked out;

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if you have further questions please don't hesitate to reach out to me here on Just Answerand I will do my best to get you the requested information.
Thanks!

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