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I have received an award covering back and future wages in

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the amount of $400,000....
I have received an award covering back and future wages in the amount of $400,000. I have learned that this amount is going to be taxed as if it was paid to me for "one week's wages". Is this acceptable? This litigation has gone on for nearly 4 years.
Submitted: 2 years ago.Category: Tax
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9/22/2015
Tax Professional: Robin D., Senior Tax Advisor 4 replied 2 years ago
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,892
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello

If you receive a settlement in an employment-related lawsuit; for example, 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.

Yes, the fact that the past employer will withhold and send this through payroll is correct. They will most likely use the flat rate of tax for withholding (25%).

You of course will be able to have any amount refunded to you when you file your tax return that is more than your true liability for the entire year.

Please advise if you need more information or rating in a positive way is acceptable.

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 2 years ago

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.

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