Employment Litigation and Claim Settlements: Maximizing Tax Benefits and Avoiding Penalties

Tax Considerations for Employers When Drafting Settlement Agreements

Note: CPE credit is not offered on this program

Recording of a 90-minute CLE webinar with Q&A

Conducted on Tuesday, April 28, 2020

Recorded event now available

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Program Materials

This CLE webinar will provide employment counsel and tax advisers guidance for structuring complex settlements and complying with complex tax reporting and withholding requirements applicable to employment claims. The panel will discuss best practices for employers looking to structure settlements, maximize tax benefits, and avoid penalties when allocating settlement proceeds. The panel will also discuss the reporting of payments and the tax implications of plaintiff requests in settlement agreements.

Description

The law governing the approval of settlement agreements and the tax treatment of settlement payments is complex and continually evolving. Employment counsel and tax advisers negotiating settlement agreements for employers must understand how structuring a settlement, drafting a contract, allocating settlement proceeds, and making payments impact the employer’s eligibility to claim tax deductions for the payments and related attorneys’ fees as well its obligations to pay payroll taxes, take withholdings, or file information returns for 1099 income. Improperly characterizing a settlement payment can result in tax liability, penalties, interest, or other unforeseen consequences.

To minimize potential adverse outcomes, employment counsel should carefully consider the structure of the settlement and the language of the settlement agreement about taxable damages. Counsel should clearly state the purpose of all payments such as wages, damages, or attorneys' fees in the agreement, evaluate which payments are taxable and which are nontaxable, and identify the proper reporting forms for each type of claim.

Listen as our authoritative panel of employment and tax attorneys discusses the implications that employment counsel should consider and address when negotiating settlement agreements to resolve employment disputes.

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Outline

  1. Settlement payments that must be reported
  2. Settlement payments that are tax-deductible
  3. Settlement agreement structuring options
  4. Settlement agreement drafting strategies

Benefits

The panel will review these and other key issues:

  • What types of options exist for structuring an employment settlement?
  • What types of settlement payments in an employment dispute taxable as wage income to the recipient?
  • What types of settlement payments and related attorneys’ fees are tax-deductible by the employer?
  • What tax reporting obligations do employers have following a settlement?
  • What are some best practices for anticipating and addressing tax issues when negotiating employment dispute settlement agreements?
  • What are the tax issues in the context of class actions and collective actions?

Faculty

Fortuna, Julian
Julian A. Fortuna
Partner
Taylor English Duma

Mr. Fortuna focuses his practice on domestic and international tax planning and tax controversy matters. His industry...  |  Read More

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