You would need to report the entire settlement on your taxes. You would enter the W-2 as normal and the additional monies as "lawsuit proceeds" as described in the FAQ below (just enter the difference between the W-2 and $600 as amount received without a 1099-MISC form):
https://ttlc.intuit.com/replies/3302162
Regarding the state, it would depend on which state but I would file the return anyway to get back those taxes withheld.
