Sexual harassment law suit

[PIGLEE]

Client sued for sexual harassment, discrimination, pain and suffering & medical.
She received 60,000 and 30,382 went to lawyers. She received a 1099 Misc with an amount in box 7 of 60,000. I have a copy of the settlement agreement and it is a very generic form does not really say what the settlement is for.

In my research it looks like it is taxable. On page 3-21 under taxabel it says "damages for nonphysical injuries (discrimination.........).

BUT would it also be taxable for Social Security on SE?

[erchess]

Sexual Harrassment

I thought sexual harassment was on a par with racial discrimination and not taxable. On the other hand parts due to pain and suffering are taxable. I think I would report it all as non taxable or at least the greater part as non taxable.

[PIGLEE]

Thanks, for the fast reply. That was my orginal thinking, but can't find anything to support it. I hope this is true.

[erchess]

I'm afraid I agree with you

I think the 60K has to be reported but see pg 4-26 for claiming the expenses as an adjustment to income.

Got to admit I don't like this outcome but oh well we don't make the rules.

[taxxcpa]

Sexual harassment

I'm not sure if it is taxable or not. If it is taxable, I recall having read that you report the whole amount then deduct the legal fees on schedule A as a miscellaneous deduction subject to the 2% haircut.

It should not be subject to self-employment tax.

[Uncle Sam]

Sexual Harrassment Law Suit

Taxxcpa - that's my understanding as well.

[Burke]

Taxxcpa is correct. It is not subject to self-employment tax. But it is taxable. The 1099 is incorrect. It should have been reported in Other Income, Box 3. See instructions for completing Form 1099MISC, page 4. In addition, since it is a sexual discrimination case, the attorney's fees are deductible as an adjustment to income on Line 36. This was covered in a previous post by kpangelinan on 7/1/09. (Sorry, I don't know how to do the link.)

[PIGLEE]

Thanks, I had figured out that the expense would be deducted as an Adjustment to Income.

Now for a new twist. She received her settlement in 2010, paid some attorney fees in 2010. But I just found out she also paid attorney fees in 2008 & 2009, and will also pay some in 2011. Are these deductable as an adjustment in the year she settled, or do we need to amend the past years and put it on the 1040 as an adjustment. It looks like you are limited to the deduction to the extent of income from the action. So my thinking is would not be deductible in 2008,09 or 11 (because no income received those years). But then how do you in 2010 deduct something not paid for in 2010.

[Burke]

Good grief, did anybody get any money other than the lawyers? If the previous years' attorney fees were all totally directly related to this particular case, then I guess you could treat them as capitalized expenses and deduct them against the income this year. But I would check to see if they don't owe her a refund -- from the withholding of fees from the settlement. You say you have a copy of the settlement agreement. Does it mention attorney's fees? PS: I don't think you can include the 2011 fees in there. They would have to go on next year.

[PIGLEE]

Thanks, that is my thinking, but could not find anything in writing. She was fighting a Fire Department, and had to hire a lawyer to get it started, they he turned it over to another lawyer. She really had a fight on her hands, I am glad she won, it was more of a moral victory than a financial one.

[taxea]

Client sued for sexual harassment, discrimination, pain and suffering & medical.
She received 60,000 and 30,382 went to lawyers. She received a 1099 Misc with an amount in box 7 of 60,000. I have a copy of the settlement agreement and it is a very generic form does not really say what the settlement is for.

In my research it looks like it is taxable. On page 3-21 under taxabel it says "damages for nonphysical injuries (discrimination.........).

BUT would it also be taxable for Social Security on SE?

it isn't earned income....not subject to SE tax.