On December 21, 2012 the UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF LOUISIANA gave final the Economic and Property Damages Settlement Agreement as amended on May 2, 2012. This agreement established objective standards for determining causation and calculating claims under a class action lawsuit for all parties defined in the agreement.
Our office is assisting individuals and businesses in claims under the agreement.
Payments received for lost business income, lost wages or lost profits are includable in income, but a payment made from BP to an individual to compensate for lost wages will not be wages for purposes of the social security tax and Medicare tax because it is not an actual payment for employment within the meaning of the law. These payments will also generally not be subject to income tax withholding, unless backup withholding applies. However, if the payment is made by an employer to its own employees, or by a third party to employees of another employer in satisfaction of an obligation of that employer to its employees, the payment may be subject to social security tax, Medicare tax, and income tax withholding.
However, IRS has concluded that individuals who receive payments that represents compensation for lost income must include the amount of the payment in net earnings from self-employment for purposes of the self-employment tax. The Settlement payments are being reported to the individuals and to the Internal Revenue Service as Non-Employee Compensation. Consequently, the Service is assessing Self Employment Taxes on all such payments even if relating to Rental Properties.
Federal Statutes say otherwise, and at least one court case says otherwise. Our office has been successful in sustaining the position that BP Settlement Payments are NOT subject to Self Employment Taxes. Call our office for any needed assistance in this regard.