Footnote 205

Since 1996, however, virtually all damages in employment cases must be included in gross income and are subject to taxation; allocation of monetary sums in settlement agreements generally cannot avoid this consequence. See generally Laura Sager & Stephen Cohen, How the Income Tax Undermines Civil Rights Law, 73 S. Cal. L. Rev. 1075 (2000). Most tax bargaining, therefore, focuses on whether the defendant will give the plaintiff a "W-2" or "1099" form. As the former involves withholding by the employer, plaintiffs would rather use the latter. In my experience, most defendants will agree to "1099" all or part of the money.