Legal Question in Tax Law in New Jersey

Please advise: how does the IRS treat settlement payments of back-wages?

If a portion is paid as W-2 Income vs a portion paid as 1099-Misc Income, does only the W-2 portion of a settlement need to be reported as taxable income?

AND

If the payor "retained" an amount of money significantly in excess of guidelines for IRS Withholding on the W-2 taxable portion of a settlement, is there recourse?


Asked on 12/02/09, 3:13 pm

1 Answer from Attorneys
Walter LeVine Walter D. LeVine, Esq.

Any litigation recovery that represents "wages" is taxable, however reported. as W-2 or 1099 miscellaneous. 1099 is reflected by you, usually on Schedule "C", and there may be oiffsets and deductions that can be claimed, to reduce the taxable amount. This should be reviewed with your tax preparer. As to withholding, while IRS tables set the amount to bhe deducted, 1099 wages and their withholding is usually a percentage of the total. If there was 1099 withholding, the amount withheld should have been paid to IRS and should be reflected in the Form 1099 you willo get, so you can claim it as an amount paiod on your behalf. Since you will be able to claim the full amount, and if this was overpaid or over-withheld you will be entitled to a refund. That appears to be the only recourse your have.

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Answered on 12/07/09, 5:51 pm


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