Yes, the Wait Time Penalty is taxable income for both federal taxes and California. It is not subject to FICA - although it is related to wages, it is not compensation. You enter the 1099-NEC and choose 'not earned as an employee or self- employed, it is from a sporadic activity or hobby' so that it will be included as Miscellaneous Income.
The Wait Time Penalty against the employer when there is a willful failure to pay wages due the employee at conclusion of the employment relationship.
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