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Legal Settlements for Former Employees: Payroll or Accounts Payable?
January 28, 2025
Q. If we need to issue a payment to a former employee for a legal settlement, should that payment go through payroll and be reported on a W2 or through AP and be reported on a 1099?
A.
(Anwered by IOFM's third-party tax expert)
It depends on the nature of the settlement. See the Form 1099 Master Guide, pages 105-116. In particular, see the discussion at the bottom of page 107 and top of page 108.
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