Summary of Withholding and Payment Obligations

This is the ninth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the withholding and payment obligations of the defendant/ payor.

	Employee *		Non Employee **
Damage Award	Payments Combined with Wages but Segregated	Payments Combined with Wages But Not Segregated
Section 104	None	None	None
Emotional Distress	None	Withholding/FICA/ FUTA/SUTA	None
Back Pay	Withholding/FICA/FUTA/SUTA	Withholding/FICA/ FUTA/SUTA	N/A
Front Pay	Withholding/FICA/FUTA/SUTA	Withholding/FICA/ FUTA/SUTA	N/A
Medical Reimbursement	None	Withholding/FICA/ FUTA/SUTA	None
Medical Insurance Reimbursement	None	Withholding/FICA/ FUTA/SUTA	None
Pre Judgment Interest	None	Withholding/FICA/ FUTA/SUTA	None
Post Judgment Interest	None	Withholding/FICA/ FUTA/SUTA	None
Wrongful Refusal to Hire	Withholding/FICA/FUTA/SUTA	Withholding/FICA/ FUTA/SUTA	Withholding/FICA/FUTA/SUTA
Balance of Contract	None	None	None
Liquidated Damages	None	None	None
Self Employment (Payment otherwise deductible under IRC Section 165)	None	None	None
Wrongful Dismissal	Withholding/FICA/FUTA/SUTA	Withholding/FICA/ FUTA/SUTA	Withholding/FICA/FUTA/SUTA
Punitive	None	Withholding/FICA/ FUTA/SUTA	None
Attorney’s Fees paid directly to Plaintiff’s Attorney	None	None	None
Plaintiff’s Award and Attorney’s Fees paid to Plaintiff’s Attorney	Withholding/FICA/FUTA/SUTA for Wages – Nothing for Attorneys Fees	Withholding/FICA/ FUTA/SUTA for wages	Withholding/FICA/FUTA/SUTA for Wages – Nothing for Attorneys Fees
To Plaintiff From his/her Attorney	None	None	None

* Employment Taxes. In the case of payments to employees which qualify as wages, the payor is also responsible for the withholding and or payment, as applicable, of one or more of the following:

1. Federal Insurance Contributions Act (FICA) which includes the employer’s share of Social Security and Medicare tax;2. Federal Unemployment Tax Act (FUTA);3. State Unemployment Tax Act (SUTA)4. Collection of income tax and employee’s share of Social Security tax;5. If the taxpayer is a railroad employer, the Railroad Retirement Tax Act (RRTA) may apply.

** Backup Withholding. IRS Section 3406(a) requires a payor to deduct and withhold from a reportable payment a tax of 31% of the payment unless the payee supplies the payor with a taxpayer identification number. If the payor does not withhold and pay over the tax, he may be directly liable for it.