Tax Law (Questions About Taxes)/Wrongful termination

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Question
I have a question on wrongful termination.  I've received a settlement which was mediated.  There was a payment made to me for a non wage settlement.  Another payment made directly to my attorney.  My question is this.  The portion that I received was reported to me in box 7 of form 1099.  I understand that it is subject to income tax but I was under the impression that there would be no social security and medicare tax due.  I was told by a friend that anything in box 7 and the IRS would want Social security tax on it.  Is there something in the code that addresses this.  Thanks so much.

Kevin Wenger

Answer
Kevin,

Thanks for your question.

The amount probably should have been placed in box 3, but it wasn't.  Show it on line 21 of the 1040 (other income) and don't pay the self-employment tax, just the income tax.  If the IRS inquires, explain that it is a wrongful termination award, which is not subject to SS or self-employment taxes.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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