My former employer has agreed to settle a discrimination/whistleblower lawsuit I filed as a universal settlement out of court. This is after I filed a complaint with the EEOC n which they offered granted me a right to sue letter and after going to mediation it was found I signed an arbitration agreement. Now before arbitration begins they want to settle. If I owe taxes will it be taken directly out of the settlement since it is a discrimination suit? Will my attorney file a 1099 based on the settlement amount and then I pay the IRS?
This is a question for your attorney to answer. However, if you are receiving damages in the form of past or future wages, your former employer may take out the relevant taxes the same way they were taken out in your paycheck. You may also receive the full amount and then you are responsible to pay the relevant income/wage taxes when you file your 2014 tax return.
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Employment / Labor Attorney
This a question for your attorney and/or a tax specialist that needs to be asked and explained before signing any settlement documents. There may be several different types of damages that are paid such as back and front wages, plus compensatory damages. Be informed before you make a decision to accept a settlement offer.