I am receiving a check from my former employer for a mental discrimination settlement agreement thru EEOC outside the court system. The agreement does not state what type of settlement it is it just says �the agreement� I saw a preview of this check and they are taking out 25% federal taxes. Am I exempt from this? It is being processed as a weekly check on their payroll. I know I am in the 10% tax bracket because I am single and make under $8,375.00 per year. They are withholding the other correct amounts. The check should be issued as a onetime annual payment. Is this correct? I have spoken with EEOC in regards to this. The original agreement had to be rewritten and instead of receiving check in mail it will be by direct deposit once they have the signed original documents and I withdraw all charges filed against them. I wrote to the person handling my case that works for the company explaining my situation. I also called the IRS and they could not give me an answer as it does not fall into any of these categories under publication 525. Please help me. Thank you.
1 Answer from Attorneys
You could be exempt, depending on how the income is classified. For instance, if it is classified as "lost wages" it is taxable income to you. If it is classified as medical expense reimbursement or something similar, it would likely not be taxable income.
It might be possible to negotiate the terms of the payment as well as the withholding.
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