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 video webinar with Q&A

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Conducted on Wednesday, December 7, 2022

Recorded event now available

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This CLE course 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 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.

There are also consequences for 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 settlement structure and the settlement agreement's language regarding 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 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. Tax-deductible settlement payments
  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 settlement payments are taxable as wage income to the recipient in an employment dispute?
  • 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 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

Katz, Joshua
Joshua P. Katz
Attorney
Higgs Fletcher & Mack

Mr. Katz practice focuses on effectively and efficiently handling tax controversy matters, which include audits,...  |  Read More

Momen, Matin
Matin (Mat) Momen
Vice President & Associate General Counsel
MetLife

Mr. Momen is a Vice President & Associate General Counsel in MetLife’s Law Department where he leads the...  |  Read More

Wood, Robert
Robert W. (Rob) Wood
Managing Partner
Wood LLP

Mr. Wood handles a wide range of tax planning and tax controversy matters. He also serves as an expert witness on tax...  |  Read More

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