Is a settlement for a discrimination case taxable income?

Forum|Forum|5 years ago
February 15, 2021
4 replies
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JohnW152

Level 15

Yes, settlements for employment discrimination are considered taxable.

According to IRS Publication 4345, Settlements -- Taxability,

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 payor and should be reported by you as ‘Wages, salaries, tips, etc.” on line 1 of Form 1040.

Please see TurboTax Help article Are legal settlements taxable? for additional information.

ddelo527Author

Level 2

Thank you. I am finding mixed statements. Mine was discrimination based on sex resulting in physical sickness. It seems like depending on exactly how my finding reads, could be or couldn’t be taxable.

Wd3

Level 2

What about a racial discriminations case filed under the title VII civil rights of 1964?

DawnC

Level 15

Was it related to your employment? Whether you must include the settlement proceeds in your income depends on all the facts and circumstances in your case. A settlement payment may consist of multiple elements that have been allocated by the parties. For example, an agreement may include allocations to back pay, emotional distress, and attorneys’ fees. You should have received a settlement statement that describes these aspects of the payment you received. See this 2-page IRS summary of the taxability of settlements for further clarification.

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ddelo527Author

Level 2

Nothing was allocated for back pay. I was being harassed and threatened at work and the agency was not stopping it. I won an EEOC case for discrimination based on sex and emotional distress. The settlement was allocated as such. Thanks for your help!

WessstEdwards

Level 2

Discrimination is one of the most important problems in modern society. A lot of information I have been reading in the last 2 weeks about various aspects of discrimination. On the site https://artscolumbia.org/free-essays/discrimination/ I found constructive articles on this matter and would like to discuss, in addition to racial discrimination, discrimination against the elderly. In American society, it is described as maintaining stereotypical and often negative perceptions of older people. This negative and/or stereotypical perception of aging and older people is manifested in areas such as language, media, and humor.