Lawsuit

8 replies
64 views

Wrongful termination

The lawyer got $20,000

Taxpayer got $10,287.28

There is no tax form, but the lawyer is saying to report it as income. Where would this go? Is it reportable?

ProSeries Professional

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N

Norman2001Answer

Level 6

From Pub 4345:

"If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination
or 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 payer and should be reported by you as wages on Line 1a of Form 1040, U.S.
Individual Income Tax Return."

sjrcpa

Level 15

yes, $30K is reportable. Other income, but it probably should have been on a W-2.

The more I know the more I don’t know.

MGC94Author

Level 7

I'm sorry. The net settlement was $20,000 the lawyer got $7,086.98 and the net proceed distributable to taxpayer was $10, 287.28. The rest was other fees.

If he doesn't have a w2 I just report $20,000 on Schedule 1 line Z?

N

Norman2001Answer

Level 6

From Pub 4345:

"If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination
or 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 payer and should be reported by you as wages on Line 1a of Form 1040, U.S.
Individual Income Tax Return."

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