Level 4

legal settlement when leaving employment

Forum|Forum|5 years ago
June 29, 2020
1 reply
1 view

If an individual taxpayer leaves their employer and gets a settlement which is reported to them on 1099-MISC box 7 non-employee compensation. Is this subject to FICA taxes? They also received a W-2 for wages earned with FICA etc., taxes withheld. The amount on the 1099-MISC was a settlement agreement to separate employment. Is this subject to FICA taxes, or is it simply other income?

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qbteachmt

Level 15

A "settlement" agreement for What?

Wages are put on W2. Box 7 seems like an error. I recommend following up to get a correction.

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G

gn86_2Author

Level 4

The wages are on a W-2 the additional amount is for a settlement agreement where the employee leaves their job and the employer for an additional amount. Its not back pay or lost wages more of an agreement to leave and not talk about the situation. I'm sure most have seen a client or two leave under circumstances such as this. I'm not too sure where the non employee compensation goes I'm assuming line 7a other income but not subject to FICA etc. so no form 8919 required?

qbteachmt

Level 15

"for an additional amount. Its not back pay or lost wages more of an agreement to leave and not talk about the situation."

Does that make it Termination/Severance Pay? Was there a lawsuit, or just an "agreement?"

There needs to be a lawsuit to have a settlement, and a lawsuit will have stated Grounds for the suit.

"I'm sure most have seen a client or two leave under circumstances such as this"

Sure; and we've all see lots of wrong 1099 documents issued, as well.

"I'm not too sure where the non employee compensation"

Box 7 is for Services performed; not a Legal Settlement or severance pay.

So either:

It's Termination Pay and incorrectly reported, should have been on the W2, and yes, Subject to FICA.

Or, it's not Box 7, but some sort of settlement for a qualified reason that would make it not subject to FICA.

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