is this taxable income

[terminatedone]

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

just a follow up since someone closed the previous thread.

i filed for an extension with the IRS. I finally got a call back from the corporate HR department. i have been leaving messages since 4/1/11 (this is in another state) i explained briefly the whole situation explained what happend and the HR was appalled that it was even aloud to go on. i worked at a subsidary office in another state. corporate in NY, sub office in PA. when i explained the paragraphs from the settlement agreement**************....the first thing said by the HR director**************..that because the settlement agreement stated what it stated, she did not feel that i should have received a 1099. also the way it was reported on the 1099 as non-employee compensation (box 7-which according to her is how they report vendor payments and payments to a lawyer) as opposed to possibly being listed under box 3 or not even sending me a 1099. HR is going to get back to me since they were only advised by the local office to send me the 1099 (which could be the harrassing factor) they did not have any of the paperwork regarding the settlement at all. I explained to HR that apparently they just tell you at the sub office to send stuff out and then you do. She indicated that this will probably change because of my situation on how they handle stuff like this in the future.

I want to thank all of you for helping me understand this whole situation; it was a true learning experience!

 

[terminatedone]

SO now i am getting a new 1099 with the amount listed in box 3!

 

[Willlyjo]

SO now i am getting a new 1099 with the amount listed in box 3!

So what is box 3 all about? Are you saying that there IS taxable income? And if so, how did the IRS determine it? Let us know more specifically here.

 

[Captian Picard]

The IRS, at this point, has not determined anything. Box 3 is other income, Box 7 is non-employee income. Taxable income??? I would assume so. I dont think it matters in your case which box its in... a 1099 is for INCOME reporting.

The IRS will likely see it as taxable.

The OP could file, giving it as taxable income, then ask for a refund based on an amended return & when denied, go to federal district court.

I assume that the OP has now received the money ... last I saw, it was just an offer.

The HR manager may have been sympathetic but the HR manager is not the controlling person at the company in respect to tax matters...most HR folks do not the expertise to make such determinations. Don't be surprised if you never hear from the HR manager again.

end communication

 

[LdiJ]

The IRS, at this point, has not determined anything. Box 3 is other income, Box 7 is non-employee income. Taxable income??? I would assume so. I dont think it matters in your case which box its in... a 1099 is for INCOME reporting.

The IRS will likely see it as taxable.

The OP could file, giving it as taxable income, then ask for a refund based on an amended return & when denied, go to federal district court.

I assume that the OP has now received the money ... last I saw, it was just an offer.

The HR manager may have been sympathetic but the HR manager is not the controlling person at the company in respect to tax matters...most HR folks do not the expertise to make such determinations. Don't be surprised if you never hear from the HR manager again.

end communication

It actually matters a great deal what box its in, due to the issue of self-employment tax. There will be significantly less to fuss with the IRS about if the OP gets a corrected 1099 showing the money in box 3.

However whether or not its taxable still depends on exactly what the money compensates the OP for.

And while yes, the OP could do the bolded, the OP could just as easily take a tax position that does not require the OP to pay the tax up front, and go to tax court if it actually goes that far. Assuming that any of it should be non-taxable.

Since we don't know how much money is involved, and we don't know OP's tax filing status and exemptions, deductions and credits, we actually don't know if any of it would end up being taxable, or how much might end up being taxable. That also makes the fact that its being corrected to box 3 even more important.

 

[terminatedone]

per the irs website!

Other items required to be reported in box 3 include the following.

Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages. Report punitive damages even if they relate to physical injury or physical sickness. Generally, report all compensatory damages for nonphysical injuries or sickness, such as employment discrimination or defamation. However, do not report damages (other than punitive damages):

Received on account of personal physical injuries or physical sickness;

That do not exceed the amount paid for medical care for emotional distress;

Received on account of nonphysical injuries (for example, emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995; or

That are for a replacement of capital, such as damages paid to a buyer by a contractor who failed to complete construction of a building.

Damages received on account of emotional distress, including physical symptoms such as insomnia, headaches, and stomach disorders, are not considered received for a physical injury or physical sickness and are reportable unless described in b or c above. However, damages received on account of emotional distress due to physical injuries or physical sickness are not reportable.

Also report liquidated damages received under the Age Discrimination in Employment Act of 1967.

 

[terminatedone]

It actually matters a great deal what box its in, due to the issue of self-employment tax. There will be significantly less to fuss with the IRS about if the OP gets a corrected 1099 showing the money in box 3.

However whether or not its taxable still depends on exactly what the money compensates the OP for.

And while yes, the OP could do the bolded, the OP could just as easily take a tax position that does not require the OP to pay the tax up front, and go to tax court if it actually goes that far. Assuming that any of it should be non-taxable.

Since we don't know how much money is involved, and we don't know OP's tax filing status and exemptions, deductions and credits, we actually don't know if any of it would end up being taxable, or how much might end up being taxable. That also makes the fact that its being corrected to box 3 even more important.

if reported in box 7, you pay self employment tax which is 30%, am i correct?

 

[ShyCat]

if reported in box 7, you pay self employment tax which is 30%, am i correct?

No. Self-employment tax refers to FICA (6.2%) and Medicare (1.45%). You pay both the employer and employee shares of FICA/Medicare, so its (6.2% + 1.45%) x 2 = 15.3%. The maximum amount subject to FICA is set each year; there is no income limit for Medicare.