how should I allocate settlement payment with my former employer?

We need a lot more information.

 

Generally, a payment for lost or back wages is considered taxable as if it was wages.  The employer should issue a W-2 and withhold social security and Medicare tax.

 

Payments for other damages are taxable as miscellaneous or "other income."  The employer should issue a 1099-MISC.

 

Payments for physical injury are not taxable at all.

"settlement payment with my former employer"

Did the employer pay you, or did you pay the employer?