Finally, an End to Double Taxation of Awards
©By Christy B. Bishop, Esq.
It’s about time! After November 2004, your employment verdict or settlement will not be subject to “double-taxation” by the IRS, thanks to Section 703 of H.R. 4520 (American Jobs Creation Act of 2004).
Before passage of the Act, all discrimination plaintiffs who won or settled a case had to pay full taxes on the attorney-fee portion, even though the attorney would likewise have to pay full taxes on the fee – hence the term, “double taxation.” Indeed, employees who had won their discrimination cases sometimes found themselves receiving tax bills that actually eclipsed their award. The practice also hampered settlements because of the tax consequences.
This new measure now ensures that you are safe from having to pay any tax on attorney fees; rather, the attorney alone pays it and the fees are deducted from the taxable portion of the settlement or verdict. Not surprisingly, the passing of the Act is applauded by businesses and employees alike. The bill was signed into law due largely to the tireless efforts of the non-profit National Employment Lawyers Association, which has lobbied for years to get this improper practice officially halted. (NELA helped draft the taxation portion of the Act, taken from its Civil Rights Tax Relief Act.)
The Act was sponsored by Representative Deborah Pryce (R-OH), and by Senator Susan Collins (R-ME), who also deserve a huge hurrah for seeing it through. (For details on the Act and NELA’s other efforts on behalf of employees, go to www.nela.org.)
