Del Rio, TX asked in Tax Law for Texas

Q: Do i need to report a seetlement in my w2 taxes

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1 Lawyer Answer
Michael W. Eaton
Michael W. Eaton
  • Tax Law Lawyer
  • Dallas, TX
  • Licensed in Texas

A: It all depends on the nature of the settlement. If the settlement is for an injury, for example, the IRS treats that as a "like kind exchange", and no tax is due for the portion of the settlement that is specifically allocated to the injury. However, any portion of a settlement which is for lost wages, for example, is merely paying you through a settlement, what you would have otherwise earned and paid taxes on, so that portion of the settlement is taxable as ordinary income. tax aspects of any settlement should be discussed and alternative tax scenarios explored with counsel before accepting any form of settlement.

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