From Pub 4345:

"If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination
or involuntary termination, the portion of the proceeds that is for lost wages (i.e., severance pay, back
pay, front pay) is taxable wages and subject to the social security wage base and social security
and Medicare tax rates in effect in the year paid. These proceeds are subject to employment tax
withholding by the payer and should be reported by you as wages on Line 1a of Form 1040, U.S.
Individual Income Tax Return."