Legal Question in Employment Law in California

I was offered a settlement amount for an overtime claim filed against a past employer. In the settlement agreement it says that I am liable for any payment of taxes. I understand that wages are taxable but shouldnt the employer also pay some taxes? Some of the money in the settlement is for late fees not just overtime wages owed. Do they usually pay taxes on the late fees and I pay taxes for the portion which are wages. I have an attorney but because my claim is not big, I think they just want me to settle so they can quickly collect their part. Is that the norm in settlements that the plaintiff is usually liable for all taxes of the settlement amount? If I do not sign can my lawyer refuse to take my case to trial?


Asked on 2/04/11, 1:05 am

1 Answer from Attorneys
Michael Kirschbaum Law Offices of Michael R. Kirschbaum

Unpaid wages are supposed to be subject to standard withholding taxes deducted and paid by the employer. Waiting-time penalties are not. But you will have to report the penalties and probably pay tax on that separately.

I have seen how the tax is paid go both ways on these settlements. Sometimes the employer will make the required deductions, sometimes they don't. Should they? Probably, yes. Is it worth refusing to settle over? That is a decision only you can make. Whether you pay the tax or they do, the net to you should be about the same. The main benefit you lose is the social security tax the employer should be paying for, if they don't pay it.

I won't tell you what to do or how to handle matters with your lawyer, as that would be inappropriate. That is between you and your attorney. You are a team and need to be on the same page, so communication is crucial. Good luck

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Answered on 2/07/11, 3:27 pm


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