Do I have to pay tax on a lump sum payment for cancellation of employment?
Yes. The lump sum payment is taxable income in the
tax year you receive it and must be
reported with your other salary and wages on your tax return. This is true even if the payment was received
(by suit or agreement) as settlement under the Age Discrimination and Employment Act.
IRS publications about a lump sum payment: For further tax information about a lump sum payment see
IRS Publication 525,Taxable
and Nontaxable Income for more details. Also see
IRS Publication 17,Your Federal
Income Tax. Please read this IMPORTANT
Editor's Note regarding navigating IRS publications with Adobe
Acrobat
Reader.
IRS publications can also be ordered by calling 1-800-829-3676.
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