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Taxes on settlement California

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  • Taxes on settlement California

    Hi
    I have a question regarding a settlement I am receiving. I successfully settled with a former employer in a race/gender discrimination case. I was told by the my attorneys that I will be receiving a check and this portion of the settlement would be treated as "wages" and the employer would deduct the applicable federal state taxes etc. The other portion which includes emotional distress etc would paid to them and I would be receiving a IRS form 1099.

    Do I pay taxes on portion that I will be paying for attorney fees and litigation costs? I am concerned that my tax bill will be slightly huge.

    Ideally, i will no doubt need to speak to a tax attorney and/or specialists.
    I hope this makes sense.

    Thanks for any help

  • #2
    If you are talking IRS rules only, I can give you a pointer to the IRS rules on settlements. I suspect that you will find the answer a bit more nuanced then you were hoping for. The federal tax law on settlements are a bit more complicated then most people (including lawyers) realize.
    http://www.irs.gov/pub/lanoa/pmta2009-035.pdf

    I have never had a reason to research CA rules on this, so I do not have a reference for you on those.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

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    • #3
      If you still have questions after reading DAW's link, why don't you talk to a CPA or tax attorney.
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