Are penalties from a lawsuit settlement taxable at federal and state (California) levels? The lawsuit is about employees being overworked and not paid overtime. Of the settlement amount, 50% is W2 income,
35% penalty, 15% interest. Want to know because if the penalty is taxable, then my income would be higher, and to avoid tax penalties for underpayment of tax I'd either have to make estimated payments or take advantage of the prior year safe harbor rule (this year's W2 tax 110% of last year's total tax, though 100% for lower incomes).- posted
16 years ago