California wait time penalty taxable (1099 MISC)?

Forum|Forum|5 years ago
February 18, 2021
3 replies
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In California, if an employer doesn't furnish last paycheck within a period of time, they are penalized through a form of payment to the former employee. This had happened to me in 2020, and I had received a 1099-MISC for that amount.

Can anyone confirm whether this 'Other Income' is taxed as federal and state income? I keep reading that it is not considered as wage, but Turbo Tax software collects federal and state income on this amount.

Best answer by JeffreyR77

If you receive a 1099-MISC, it has been reported to the IRS as income and it is taxable income to you. Report it on your tax return as it was reported on the 1099-MISC. It is not subject to self-employment and medicare taxes.

JeffreyR77Answer

ryuribe

That is not correct! California Waiting Penalty payments are not to be taxed by the state or the IRS.

See Rev. Rul. 72- 268, 1972-1 C.B. 313, which in part holds that liquidated damages paid under the Fair Labor Standards Act (FLSA) to an employee are not wages for federal employment tax purposes. The liquidated damages paid under the FLSA are similar to the waiting time penalty in that each is designed to punish employer conduct, and each is paid in addition to the wages the employer is obligated to pay to the employee.

Payments of the waiting time penalty are not wages. The payments also do not constitute compensation for purposes of the reporting requirements under the regulations. The Internal Revenue Service has consistently interpreted the undefined term “compensation” in section 1.6041-2 to include only payment for services, rather than to include all payments from an employer to an employee whatsoever. In this case, the payments are of a punitive nature, and do not compensate the employees for their services. As the Supreme Court of California stated in Pineda v. Bank of America, N.A., 241 P.3d 870, 878 (2010), the waiting time penalty “is not designed to compensate employees for work performed. Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so.”

TurboTax needs to create a way to identify 1099-MISC payments for CA Waiting Period Penalty as non-taxable income!

steffr

Have you figured out how to report this without having to pay additional Federal taxes? I just spoke with a Turbo Tax person and they had no idea.

funnybunny4

Hello, I am dealing with this now and wondering if I am able to deduct any expenses in connection with this income?

RobertB4444

Unfortunately, no. This is just entered as miscellaneous income and therefore not eligible to have expenses deducted from it.

@funnybunny4

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jj890

what's the final verdict here? I'm reading different things.. is this taxable or no?

s4v68759eb

I am struggling to follow this thread and make the correct decision regarding my 2023 return. I am seeing multiple posts saying this income is not considered taxable by state and/or federal agencies yet both my state and federal return totals are decreasing when I enter this 1099-MISC and say it was "not work related"

funnybunny4

Hi! So this is not "professional" advice, but I reported this last year, paid tax on it, and then received the money back from the government (like a massive $5k refund check later on). I chose to err on the side of reporting everything I got but ultimately it is not taxable income. Hope this is helpful!!