October 2021 Q & A
Q: Our company was targeted by payroll scammers that resulted in data theft of employee W-2 information. What should we do?
A: Time is of the essence in this situation. Quickly, but thoroughly summarize all the information that was compromised. Next, email the IRS at email@example.com, and put “W2 Data Loss” in the subject line. Don’t include any of the personal information that was compromised. Instead, provide your company name and contact phone number so someone at the IRS can call you.
Don’t forget to reach out to your state taxing authorities to report the data breach and let affected employees know so they can immediately take steps to limit its impact.
Q: I received a monetary settlement from a malpractice claim. Is the money I received taxable?
A: Generally, successful litigants in a legal malpractice case are taxed on their gross settlement or award amount. Before the 2017 Tax Cuts and Jobs Act (TCJA), attorney’s fees you incurred to litigate your case would have been deductible as non-business-related legal fees on Schedule A as a miscellaneous itemized deduction. But the TCJA eliminated this class of write-off, making the entire compensation amount taxable.
Monetary settlements for other types of malpractice claims (e.g., medical) generally aren’t taxable if they compensate you for economic losses from medical expenses or lost wages.