Hello All,
I am getting 35,000 in backpay wages and 10,000 for compensatory damages. I live in the state of Maryland and I just want to know how many taxes will the state take out? What tax bracket does the 35,000 fall in? I want to know exactly what I will be left with after taxes. I already know that they cannot touch the 10,000 because it is for compensatory damages. Thank You!
2007-08-08 02:56:15 · 3 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
The wages is fully taxable. There's no way out of that.
The $10k compensatory damages are ONLY tax-free if they were due to physical injury or illness. I do believe that there is now a court case that does add mental stress and anguish to the physical injury or illness criteria but don't have a ready reference on that. If the $10k in comp damages was not due to physical injury or illness (with a possible inclusion of mental anguish and stress) then IT will be fully taxable as well.
The total tax will depend upon your tax bracket. The taxable portions of the award are added to your other income for the year that the award is paid. If you're already in the 25% tax bracket it will be taxed at that level at least. Some of it may well kick you up to the 28% bracket so it could be higher than your current bracket in the end.
State taxes would depend upon your State tax bracket and would be in addition to the Federal tax bite.
In most cases these settlements are not subject to withholding so you will have to set aside enough of the settlement to pay the taxes due. Better yet, you should make a payment using Form 1040-ES to cover the expected liability to avoid any possibility of penalties for undermayment of tax as well as to get it out of your hands so you don't spend it on something else and leave yourself hanging that way.
2007-08-08 05:45:43 · answer #1 · answered by Bostonian In MO 7 · 0⤊ 0⤋
Who's paying the backpay wages? You should have filled out a W-4 so they would know how much to withhold for federal and state taxes. Social security will still be 6.2% and medicare will still be 1.45%.
2007-08-08 10:00:46 · answer #2 · answered by Anonymous · 0⤊ 1⤋
The $35K is added to your ordinary income in the year that you receive the settlement. The tax rate will depend on your other income for that year.
2007-08-08 10:25:00 · answer #3 · answered by ? 6 · 0⤊ 0⤋