Author Topic: Is my settlement income?  (Read 693 times)

civil4life

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Is my settlement income?
« on: January 24, 2021, 10:38:32 AM »
In 2020 I settled an employment lawsuit.  It does not split the compensation into any specific categories.  I have attached the agreement for anyone to review.  The monetary compensation details are in Section H.  I am in the state of Maryland.  Let me know if you need more information.  Thanks in advance.
« Last Edit: January 24, 2021, 01:43:47 PM by FrugalToque »

Adventine

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Re: Is my settlement income?
« Reply #1 on: January 24, 2021, 10:40:29 AM »
I will let other posters more experienced with US laws chime in with their opinions, but I advise you to edit your attachment and black out the VERY personal information in it.

Sibley

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Re: Is my settlement income?
« Reply #2 on: January 24, 2021, 10:46:05 AM »
I also received a settlement this year. I did some research regarding mine, and found this document from the IRS.

civil4life

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Re: Is my settlement income?
« Reply #3 on: January 24, 2021, 11:33:41 AM »
Thanks @Sibley that is one of the better documents I have seen.

My problem is the settlement does not distinguish what the compensation is for.  It only states "Inclusive of attorney fees and expenses."

My thought would be since it is compensation for expenses that I incurred as part of the litigation, it would not be taxable.  Additionally, the settlement was for employment discrimination.

AMandM

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Re: Is my settlement income?
« Reply #4 on: January 24, 2021, 12:24:35 PM »
I will let other posters more experienced with US laws chime in with their opinions, but I advise you to edit your attachment and black out the VERY personal information in it.

This.

Dicey

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Re: Is my settlement income?
« Reply #5 on: January 24, 2021, 01:32:38 PM »
I will let other posters more experienced with US laws chime in with their opinions, but I advise you to edit your attachment and black out the VERY personal information in it.
Agree 100%. Please do it now @civil4life!

cool7hand

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Re: Is my settlement income?
« Reply #6 on: January 25, 2021, 04:49:07 AM »
I've not been active in this scene for a few years now. Please check everything below with your tax professional.

Settlements for personal injury lawsuits are generally not income under federal tax law.

Employment settlements are tricky. Most good employee-side attorneys will try to include in the settlement documents that the settlement is for emotional distress damages, a type of damages allowed under Title VII and the other employment discrimination statutes. The reason for this is that emotional distress damages are considered personal injury damages and non-taxable, even in employment cases.

But, there was some guidance as I recall from the IRS disfavoring this tactic. The policy reason makes sense. What an employment discrimination claim is supposed to do is pay you the difference between what you made and the additional money you would have made absent the discrimination. Because the damages replace ordinary income, they should be taxed. While the statutes also allow for emotional distress damages on top of loss income, emotional distress damages should only compliment the lost income damages.

You should work with a tax professional to identify your options and risks, especially since I've no idea what your state's law requires.

Good luck!