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tax status for a buyout payment

What is the tax status for the recipient of a buyout (incentive to vacate premises), in the state
of California? Is it taxed as capital gains and if so, how can I avoid this? If the payment is worded as a rent rebate, is it taxable? In other words what are the tax ramifications of the buyout and can I avoid the taxes?

1 Reply
Employee Tax Expert

tax status for a buyout payment

Hello @hongto !


Thanks for the question. 


In most situations I have seen, buyouts like these are considered "other" taxable income, and the payer issues a 1099-MISC to the payee. This income will be subject to your highest ordinary income tax rate (not a lower capital gains rate), so keep this in mind when negotiating! 


All my best, 

Adam, EA

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