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I resigned my employment after 24 years. Two months after…

Pearl I resigned my...

Pearl I resigned my employment after 24 years. Two months after leaving I received a settlement letter with some monetary compensation so that I did not share any trade secrets or speak about the group in a negative way. Since I had not been employed with the company for over 2 months do I have to pay taxes on the amount given? I think they were concerned about an age discrimination suit.

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

They have not issued me a 1099 although they said they would. If its a taxable event do I wait for the 1099 to report the tax.?

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Answered in 10 minutes by:
3/16/2018
James Daloisio
James Daloisio, Tax Attorney
Category: Tax
Satisfied Customers: 734
Experience: 24 years of continuing education and experience.
Verified

Hi, my name is ***** ***** welcome to Just Answer.

Yes, it's taxable income whatever you consider it to be, termination pay, a contract payment to not disclose trade secrets...the idea is, all of your income is taxable unless the government says it isn't, and there is no exception for what you've described.

A good rule of thumb for "income" is this: If you had to do something to get it, then it's income.

If they issue a form 1099-MISC for the payment you should report it as miscellaneous income on line 21 of form 1040. This is for income received by individuals who are NOT in a self employed trade or business; otherwise you'd have to file a Schedule C and pay self employment tax on any profit. If the IRS contacts you regarding why you reported this income on line 21 instead of on Schedule C, you should explain that it was a one time payment by a former employer and not incident to any self-employment activity.

Yes, I would wait for the 1099-MISC before filing my tax return. That way you know exactly how much as been reported to the IRS, and your tax for the calendar year will be accurate.

Hope that answered your question. If so please don't forget to rate this answer. You can always return here with follow up questions on this topic at no additional charge. And thank you for using Just Answer!

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Customer reply replied 4 months ago
JamesCan I file my tax return and just wait for the 1099 and pay any additional tax then? Would it be subject to penalties and interest because I didn't file it at the time of my return. Thank you for your response.

Hi, I see that you requested a phone call but I can't connect to the service. In response, you won't be assessed any penalties as long as you file and pay by the due date, 04/17. Even if you owe additional tax you won't be assessed a penalty as long as you paid quarterly taxes, or had taxes withheld from your wages, equal to 90% of the current years tax, 100% of the prior year's tax, or you owe less than $1,000.

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Customer reply replied 4 months ago
I guess I’ll just pay the tax if the 1099 does not get here by filing due date. Thank you.

If you don't receive the 1099 by the 10th of April or so, just file your taxes with the info you have, and then file an amended return when you receive the 1099.

Have they actually given you the money?

If so, include the amount that they paid you on line 21 when you file the return. Then, if the amount on the 1099 doesn't match, you'll have to have the former employer correct it. The amount you received should match the amount in box 7 on your 1099-MISC. There is no withholding on a 1099.

James Daloisio
James Daloisio, Tax Attorney
Category: Tax
Satisfied Customers: 734
Experience: 24 years of continuing education and experience.
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Customer reply replied 4 months ago
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