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mollish · Mar 3, 2011, 01:16 PM

I recently sued a previously employer for discrimination and prior to going to court to we came to a “reconciliation agreement“ and no further judgments. Do I have to pay taxes on this money? If so, it considered part of my “normal” income?

JudyKayTee · Mar 3, 2011, 01:51 PM

It should be tax free - how was the settlement agreement worded?

Your Attorney knows 100% based on where you are located.

ebaines · Mar 3, 2011, 01:53 PM

No - court judgments or settlements are not considered to be income to you for tax purposes. Sort of like insurance payments for casualty losses - it's simply repaying you've for something you've lost.

JudyKayTee · Mar 3, 2011, 01:55 PM

This is something to do with discrimination. I've seen agreements written with part of the settlement being "lost wages" and I've seen part of the "lost wages" taxable.

Of course, only OP and his Attorney know the background.

mollish · Mar 4, 2011, 09:37 AM

JudyKayTee,

Yes, this was a discrimination suit and yes I sued for back wages however, we agreed upon a lesser amount than full back wages. There was nothing in the agreement that stated that this was taxable earnings. Maybe I am just wishful thinking... Thank you for your help. I will contact the D.A. in my state, since he handled my suit for me.

ebaines · Mar 4, 2011, 09:49 AM

I've done a bit more research, and indeed the IRS considers "lost wages" generally as taxable, just like the wages you lost would have been. Other types of awards such as for physical injury are generally tax-free. Here is a notice from the IRS about compensation to gulf oil spill victims which may provide some guidance:
http://www.irs.gov/pub/irs-pdf/p4873a.pdf

mollish - you should have received a 1099-MISC from the payer - did you?

JudyKayTee · Mar 4, 2011, 10:52 AM

Right, maybe I didn't state it well. Back wages CAN be taxable income. Depends on how the settlement is worded.