Legal Question in Employment Law in California

Tax Withholding on Settlement

I recently agreed to a settlement of a claim against my former employer. As part of the settlement agreement my employer insisted on withholding taxes from the settlement on a W-2 basis using my old W-4 form. However, when I received the settlement check, the federal and state withholdings were virtually double the amount that I had estimated should have been withheld. In fact, the withholdings reduced the check by almost 40% when my normal withholdings were about 19-20%. My attorney told me it was because it is a lump sum payment; however, I can find no reference anywhere on the IRS web site that allows for that kind of withholding. This does not qualify as ''backup withholding'' but my attorney says that is basically what they did.

My attorney says I cannot get out of this deal; however, I had based my decision to accept the settlement in large part on the amount I expected to receive after withholdings. I would never have agreed to this settlement if I had known about the extra withholdings.

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