Settlement proceeds: To tax or not to tax?

Description

Abstract: When negotiating a settlement in employment law cases, employees sometimes overlook how the language of the settlement agreement can have significant tax consequences, depending on what’s included in the description of the claims being settled. This article summarizes a recent U.S. Tax Court ruling in favor of the IRS, which found that the taxpayer’s discrimination and work environment settlement proceeds were indeed taxable. A sidebar summarizes the tax treatment for various types of damages awards. Zinger v. Commissioner, T.C. No. 2018-33, July 2, 2018