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| | {{ForumReplyPost|UserID=KathiJud|Date=30 October 2009|Text=My husband got a back pay settlement last year as a result of a class action suit for underpaid overtime. We got two separate payments as detailed in the settlement papers we received. One was on a W-2 with FIT, FICA & Medicare tax withheld. This W-2 was not issued by the employer. The other lump sum payment was on a 1099 (box 3) and we were instructed to report on line 21 without any SE tax due etc. The lump sum amount on the 1099 was reported gross of the attorney fee we were charged. Of course the net of those two was the amount of the separate check we received. Attorney fees were taken to Sch A (2% category) and lost.}} | | {{ForumReplyPost|UserID=KathiJud|Date=30 October 2009|Text=My husband got a back pay settlement last year as a result of a class action suit for underpaid overtime. We got two separate payments as detailed in the settlement papers we received. One was on a W-2 with FIT, FICA & Medicare tax withheld. This W-2 was not issued by the employer. The other lump sum payment was on a 1099 (box 3) and we were instructed to report on line 21 without any SE tax due etc. The lump sum amount on the 1099 was reported gross of the attorney fee we were charged. Of course the net of those two was the amount of the separate check we received. Attorney fees were taken to Sch A (2% category) and lost.}} |
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| | + | {{ForumReplyPost|UserID=RoyDaleOne|Date=30 October 2009|Text=Would not the new definition of "wages" include the amount of attorney fees paid on behalf of the employee? |
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| | + | Also, are not some class action suit attorney fees allowed above the line or are not income?}} |
Revision as of 06:31, 30 October 2009
Discussion Forum Index --> Advanced Tax Questions --> Settlement income
Discussion Forum Index --> Tax Questions --> Settlement income
Margy (talk|edits) said:
| 13 February 2008
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| My client received a 1099-Misc for a settlement for back pay. It is in box 3 as other income. Since this is for back pay, shouldn't this be subject to SE tax?
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Margy (talk|edits) said:
| 13 February 2008
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| In my research it appears that the income is just other income. That sounds to me that it just goes on line 21 and NOT subject to SE tax.
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Riley2 (talk|edits) said:
| 14 February 2008
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| Back-pay awards are subject to FICA/Medicare, not SE tax. Back-pay awarded under a statute is subject to reporting in the year that the wages should have been received. See Rev. Rul. 89-35.
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TheTinCook (talk|edits) said:
| 14 February 2008
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| Hmmm, I've seen it reported on w-2's for the current year.
I guess the SS credits would be all messed up.
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Jctmstx (talk|edits) said:
| 14 February 2008
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| I would think the rule of constructive receipt would apply and it would be reported in the year received for a cash basis taxpayer.
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Margy (talk|edits) said:
| 14 February 2008
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| The income was reported on a 1099-Misc. Also, it's reported in the year of receipt. I'm just not sure whether to subject it to SE tax. The info I researched said that the character of the income is the same and that it is "other income". Well, "other income" to me sounds like line 21. However, if the character is the same, it should be taxed for SE. Ideally, I think a W2 should have been issued, and then my client would only pay their 1/2 of FICA/medicare.
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Dennis (talk|edits) said:
| 15 February 2008
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| Actually Revenue Ruling 89-35 seems to say Form 4137 rather than Schedule SE. In Bowman the court determined that the settlement was subject to FICA/Medicare at the rates that were in existence in the years the settlement applied to.
IRS, logically finding this an unworkable solution, wants the rates in effect in the year received. I vote that Riley needs more sleep. ♫
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Riley2 (talk|edits) said:
| 15 February 2008
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| At the risk of repeating myself, I will repeat myself. Back-pay awards are subject to FICA/Medicare -- not SE Tax. Rev. Ruling 89-35 confirms this as well as pointing out the correct withholding rate.
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Dennis (talk|edits) said:
| 15 February 2008
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| OK So long as you don't repeat "subject to reporting in the year the wages should have been received."♫ Sleep is good.
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Margy (talk|edits) said:
| 15 February 2008
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| My client will not get a W2, so I have to treat this with the info I have. I agree that Form 4137 should be used so my client will only pay the portion he's liable for.
I also agree that we all need a little more sleep. I'm setting my alarm for 7:00 AM 4/16.
Thanks.
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Jahtax (talk|edits) said:
| 29 October 2009
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| Could you use Form 8919? It seems more appropriate, however it seems to require that SS-8 also be submitted, which is a hassle. My client got a 1099-MISC with box 7 income for a back pay settlement.
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Kevinh5 (talk|edits) said:
| 29 October 2009
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| hassle or pay tax, let the client choose. I'd push for the 8919.
but that disagrees with Riley2, I accept.
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KathiJud (talk|edits) said:
| 30 October 2009
|
| My husband got a back pay settlement last year as a result of a class action suit for underpaid overtime. We got two separate payments as detailed in the settlement papers we received. One was on a W-2 with FIT, FICA & Medicare tax withheld. This W-2 was not issued by the employer. The other lump sum payment was on a 1099 (box 3) and we were instructed to report on line 21 without any SE tax due etc. The lump sum amount on the 1099 was reported gross of the attorney fee we were charged. Of course the net of those two was the amount of the separate check we received. Attorney fees were taken to Sch A (2% category) and lost.
|
RoyDaleOne (talk|edits) said:
| 30 October 2009
|
| Would not the new definition of "wages" include the amount of attorney fees paid on behalf of the employee?
Also, are not some class action suit attorney fees allowed above the line or are not income?
|
