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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