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.

Related tax information about a lump sum payment

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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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