is this taxable income?

[terminatedone]

What is the name of your state (only U.S. law)? PA

i sued former employer. they sent me a 1099 for my settlement. (which i know was covered by their insurance company). i sued for violation of fmla. in the settlement papers it indicates that they are not admitting to any violations or wrong doing. they also indicated that this release includes, but is not limited to, any claims under the fmla, any claims for any and all damages including damages for emotional distress and physicall illness; and/or any other statutory or common law claims, now existing or hereinafter recognized.

releasee makes no representation or warranties regarding any tax issues relating to the settlement payment provided for herein, and releasor acknowledges that she has not relied upon any advice from releasee concerning the taxability of the amount to be paid under this agreement. releasor agrees that she is responsible for any taxes owed on the payment she receives under this agreement and agrees to idemnify releasee for any tax liability.

so they sent me a check and out of my settlement check they cut a part of it to pay my attorney. do i claim this as loss of wages? or is it just not that since it did involve physicall illness and emotional distress.....even though they dont admit to it.

this will determine if i get money back on my taxes or not.

thanks for your responses

 

[ecmst12]

Your attorney is the best person to ask about this.

 

[musicman654321]

Tax required on these things is very tricky ... seek out an accountant as well as an attny. Attnys dont know all the ins and outs of the settlement terms needed to say it is not taxable.

Generally, the IRS just looks at the settlement agreement...it looks, right now, to me that it would be taxable as it is a 1099...

but seek out better advice than here.

 

[pattytx]

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

BTW, this took less than 5 seconds to find on the IRS web site.

 

[LdiJ]

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

BTW, this took less than 5 seconds to find on the IRS web site.

That was an excellent resource. I had not seen that one before. However, it did not address the issue of the attorney fees.

OP, you would deduct the attorney fees on Schedule A, as an other deduction not subject to the 2% limitation.

 

[terminatedone]

thank you. i agree i never saw that one either on the irs website.

but if the former employer indicated that they do not admit to fault and i know that personal injury and stuff is not considered taxable then i am confused. also, when i talked to the IRS, they could not answer my question as to whether this is considered taxable income. irs did indicate that if it is considered not taxable, i have to contact former employer and advise them to send a correction to the 1099. i thought that insurance proceeds are not taxable and that is where the money came from. i have a copy of the insurance booklet and information since they had to disclose this to my attorney

 

[ecmst12]

If the settlement is meant to represent wages, it should be taxable. Personal injury settlements are meant to reimburse for expenses and compensate for non-tangible damages. It has nothing to do with whether it was covered by insurance or not.

 

[davew128]

OP, you would deduct the attorney fees on Schedule A, as an other deduction not subject to the 2% limitation.

Are you so sure? Sounds like the suit was based on unlawful discrimination due to a FMLA violation. Does that change your answer?

 

[musicman654321]

It will all hinge on the terms of the settlement agreement .... a good attny can make it so you have no tax liablity

 

[davew128]

It will all hinge on the terms of the settlement agreement .... a good attny can make it so you have no tax liablity

Ever heard of substance over form?

 

[tranquility]

I agree with Dave128 both with the civil rights issue and with the substance over form. This case could be special rules in the first place and what the attorney puts down is not determinative in the second.

 

[terminatedone]

ok now i am confused. if the settlement states :

i sued for violation of fmla. in the settlement papers it indicates that they are not admitting to any violations or wrong doing. they also indicated that this release includes, but is not limited to, any claims under the fmla, any claims for any and all damages including damages for emotional distress and physicall illness; and/or any other statutory or common law claims, now existing or hereinafter recognized.

releasee makes no representation or warranties regarding any tax issues relating to the settlement payment provided for herein, and releasor acknowledges that she has not relied upon any advice from releasee concerning the taxability of the amount to be paid under this agreement. releasor agrees that she is responsible for any taxes owed on the payment she receives under this agreement and agrees to idemnify releasee for any tax liability.


so this is not taxable income? and what is that form that you are stating?

 

[OHRoadwarrior]

A 1099 is indicative of income. I would treat the amount as wage reimbursement.

 

[terminatedone]

did you read what it indicates as what the settlement agreement indicates?!

releasee makes no representation or warranties regarding any tax issues relating to the settlement payment provided for herein, and releasor acknowledges that she has not relied upon any advice from releasee concerning the taxability of the amount to be paid under this agreement. releasor agrees that she is responsible for any taxes owed on the payment she receives under this agreement and agrees to idemnify releasee for any tax liability.

 

[ecmst12]

And NONE of that says one way or the other whether taxes are due.