This is the tenth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the reporting obligations of the payor.

Damage Award

Payments to Current or Former Employee

Payments Not Segregated from Wage Award to Employee

Payments to Non-Employee *

IRS Section 104

None

None

None

Back Pay

W-2

W-2

N/A

Front Pay

W-2

W-2

N/A

Emotional Distress

1099 MISC

W-2

1099 MISC

Medical Reimbursement

None

W-2

1099 MISC

Medical Insurance Reimbursement

None

W-2

1099 MISC

Pre Judgment Interest

1099-INT

W-2

1099-INT

Post Judgment Interest

1099-INT

W-2

1099-INT

Wrongful Refusal to Hire

W-2

W-2

W-2

Wrongful Dismissal

W-2

W-2

N/A

Balance of Contract

1099 MISC

W-2

1099 MISC

Liquidated Damages

1099 MISC

W-2

1099 MISC

Deductible Losses

None

None

None

Punitive

1099 MISC or W-2

W-2

1099 MISC

* Payments of Attorney’s Fees – In the context of settlements and verdicts from employment litigation, fees paid to an attorney of $600 or more, paid in the course of the payor’s trade or business, are reportable in box 7 of Form 1099-MISC. If the payment to the attorney includes both an award to the attorney’s client and attorney’s fees, and the potion attributable to attorney’s fee cannot be determined, the total amount paid to the attorney (gross proceeds) must be reported in box 14. These rules apply even when the legal services are not provided to the payor or when the attorney is not the exclusive payee. The term “attorney” includes a law firm or other provider of legal services.