I was wrongfully terminated (in my attorney's opinion) by a Judge in the Government) in May of 2020. I have lawsuits (employment discrimination and retaliation complaints) -- five different cases in DC Office of Employee Appeals (case on suspension-won; and case on termination in progress); DC Superior Court/DCCA; DC Public Employees Relations Board (illegal removal from Union); and Federal District Court--most that have been going on since 2017. Government has proposed a settlement that will only net me about $200K total after taxes and additional attorneys fees. I have $80K on credit cards for initial legal fees. I am a single mother and grandmother, age 62 (raising my six year old granddaughter, no child support-father died). I was forced to take early retirement due to the loss of my job at age 62....receiving about $1,865 per month, first payment received the last week in October. Now Government is proposing to settle my case, with no new job. How will a lump sum payment to me of $220K after 25% paid to my attorney and 30% paid for taxes -- affect my social security payment, which just started in October? Should I take the lump sum payment this year (November)? I wanted to wait until January, due to possible taxes on my unemployment...but I'm afraid if I wait to receive the settlement in January...that I will LOSE my social security payments for the entire year (2022). Unsure what I should do...take the payment this year or next year? I do not want to lose entire next year of SS payments due to getting paid this settlement...Thank you.

Hi. I'm not a tax expert so I can't give you any tax advice. For Social Security earnings test purposes, though, I can tell you that it won't matter when you receive the settlement. Receipt of a settlement for wrongful termination wouldn't be counted as current earnings for purposes of Social Security's earnings test. I'm not sure from your description whether or not they'd even count as earned income, but even if it is it wouldn't be considered as having been earned at the time you receive the payment.

Assuming that you don't return to work for your former employer, any payment you receive from your former employer would be considered for Social Security earnings test purposes to have been earned in the month you last performed services as an employee for your employer. But, if you do receive a W-2 form when you get your settlement, then you'll need to report the income to Social Security along with documentation that explains the income was part of a settlement you received from a former employer. Social Security should then exclude the income from counting for earnings test purposes.

Best, Jerry