If you are successful in a discrimination suit, back pay may be awarded to you. Like virtually any source of income, back pay is subject to income taxes.
However, when someone receives a back pay award, it usually comes in a large lump sum payment. Because we have a progressive tax system where the more money you make the more taxes you pay, large back pay awards are often substantially reduced by the increase in the amount of income tax due on the back pay award.
In a recent discrimination lawsuit, Matthew Whitfield successfully sued Navistar and received a substantial judgment. The court, in considering the additional tax burden by Whitfield’s receipt of a large lump sum payment, granted leave to Whitfield to ask for a larger settlement to take into consideration the higher tax bracket he will be in because of the lump sum back pay award.
We agree with the court’s thinking in this regard. What do you think?