By:  Shauna N. Correia

Many of our employer clients and their in-house counsel recognize that most of the claims paid in an employment settlement are taxable income for the employee. Employers therefore, wisely require that at least some of the settlement payment to the employee be made in the form of a payroll check, with applicable withholding deducted. Employees, however, often want to minimize or eliminate the portion of their settlement proceeds that is subject to withholding. This is where the IRS becomes a silent party to the settlement agreements for employment claims. This blog highlights the risks and provides practical pointers for in house counsel to consider when dealing with the issue of wage allocation during settlement discussions for employment claims.

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