IRS addresses employment-related settlements and judgments
Abstract: As attorneys litigate and settle an increasing number of employment-related lawsuits, certain questions related to the taxability of settlements and judgments commonly arise. A recent IRS memo may clarify some matters for both sides in employment disputes. This article looks at income and employment tax consequences of employment-related settlements and judgments, including the allocation of funds and treatment of back pay and attorneys’ fees. A sidebar shows how to determine the components of a settlement or judgment.