topic Wrongful termination settelment in Retirement tax questions

Wrongful termination settelment

user17621099375 — Sun, 02 Nov 2025 19:28:53 GMT

My ex company fired me for attendance violations.

The company views attendance as this listed below.

If an employee misses a day of work,

This counts as 1 missed day and 1 occurrence.

If the employee misses 7 days of work, this is counted as 7 days and 1 occurrence.

If the employee misses work due to any covered FMLA covered incident it is counted as X days of work and 1 occurrence.

When ether the days of work missed equal 12 days or 7 occurrences, (I don't remember the correct days) this will trigger disciplinary action up to and including termination. And there are 5 steps before termination.

When this rule went into effect, because I had surgery for an existing condition, I made it to notice of termination, ie step 4. That was in 2011. It has a rolling calendar of 1 year before it drops down a step.

During the next 8 years, do to ether otj injury or existing condition absence, all of which were covered by fmla, I could never get the disciplinary actions reduced. I was forever stuck at warning of termination. The reason, occurrence count. And the rolling calendar never reset it just kept adding on occurrences. I was under lots of pressure and my health declined ptsd for walking an edge being fired.

Que my being fired for attendance, one unauthorized day missed, which I believed had been authorized because of past experiences with the company.

My life went out of control mentally. Drug use and rehab. It was bad.

Remember all previous absences were counted under FMLA or OTJ injuries.

In short I won the case for wrongful termination in a lawsuit.

3 checks cut.

One as back wages

One to my attorney

And one as emotional distress.

Is the check cut for emotional distress counted as taxable?

I believe it is because all the absences that triggered this were ether surgery or otj injuries which because of a broken system that counted occurrences held me to a standard of attendance, even though protected by law, lead me to termination.

Ie if I hadn't missed work because of the injury from work and or missed work because I had carpet tunnel syndrome, cubital tunnel and TOS that needed surgery so I could function in the position, none of the disciplinary actions would have happened.

Please help

Re: Wrongful termination settelment

Bsch4477 — Sun, 02 Nov 2025 22:16:16 GMT

The tax treatment depends on the underlying reason for the lawsuit. If the origin of the claim was for a physical injury and emotional distress flowed from that injury (e.g., anxiety due to chronic pain from a car accident), the entire settlement amount is typically non-taxable.

I am not an attorney but it seems that the origin of your suit was dismissal from your job not your surgeries.

Re: Wrongful termination settelment

Opus 17 — Mon, 03 Nov 2025 17:20:17 GMT

The entire amount is taxable, including the portion sent to the attorney, since that is your money awarded for your damages, that you happen to pay to an attorney.

The amount of lost wages should be reported on a W-2, and is subject to social security and medicare tax. If the company does not issue a W-2, you can file your taxes with a substitute W-2 form.

The compensation for pain and suffering is only non-taxable if the pain and suffering arose from physical injuries. Since you were not compensated for physical injuries that occurred at work, then it is clear that the "pain and suffering" is for the improper termination, and is taxable. The amount set aside for the attorney is also taxable to you. These two amounts should be reported on a 1099-MISC.

The attorney fees are not deductible by you unless this was a lawsuit for unlawful discrimination (UDC). There are many kinds of discrimination claims, and if you are unable to work due to a physical or psychological condition and they did not make appropriate accommodations, this might be an UDC case. You may need to ask your attorney. You must report the entire settlement as taxable, and then deduct the fee in writing in a specific way, you can't just leave the attorney fees off. To properly deduct UDC, you need to make manual entries on the tax form using Turbotax Desktop version installed on your own Mac or PC from a download. You can't deduct UDC attorney fees using Turbotax Online. If this is not a UDC case, the attorney fees are taxable to you and not deductible.

To put another way, the company is settling over something they did. They did not cause the injury, so the settlement is not for the injury, but the wrongful termination.