Money Math
W-2, 1099, and Attorney Fee Calculator
Calculate the plaintiff's net recovery under a contingency fee arrangement, with allocation between wages and non-wage income for tax purposes.
This is an estimate for settlement discussion purposes only. It is not legal advice and does not account for all possible factors.
How it works
Employment settlements have an extra step that ordinary contingency math misses: after fees and costs, the plaintiff's net recovery has to be allocated between wages and non-wage income, and that allocation drives taxes.
This calculator runs the standard contingency arithmetic — settlement amount, fee percentage, litigation costs, net to plaintiff — and then splits the net by a wage-allocation percentage you control. The wage portion is generally treated as W-2 income subject to payroll tax withholding; the non-wage portion (for example, compensatory damages for emotional distress) is typically reported on a 1099 without payroll taxes.
Allocation must reflect the actual claims in the case — it is a characterization of what the settlement pays for, not a dial for minimizing taxes. But within the range the claims support, the split makes a real difference to what the client keeps, and it's better negotiated deliberately.
Worked example
A $250,000 employment settlement with a 40% fee and $10,000 in costs nets the plaintiff $140,000. Allocated 50/50, that's $70,000 of wages (subject to withholding) and $70,000 of non-wage income. To see what the allocation means in after-tax dollars, carry both numbers into the Rough Guess After Taxes Estimator.
When to use it
Use it when drafting or negotiating the settlement agreement in an employment case — the allocation belongs in the written agreement, and this shows both sides what each split means before anyone signs.
Frequently asked questions
Why are employment settlements split between wages and non-wages?
Because the tax treatment differs. Amounts paid for lost wages are wages — subject to income and payroll tax withholding, reported on a W-2. Amounts paid for non-wage claims like emotional distress are generally reported on a 1099 and not subject to payroll taxes. The settlement agreement should say which is which.
Can we allocate everything to non-wages to save taxes?
No. The allocation has to reasonably reflect the claims being settled — a case pleaded almost entirely as lost wages can't plausibly settle as 100% emotional distress. Unreasonable allocations invite IRS scrutiny for both sides. Get tax advice on the specific case.
Is the wage portion taxed differently from the non-wage portion?
Yes. Wages bear income tax plus the employee's share of FICA, with employer withholding. Non-wage damages are still ordinary income (unless for physical injury) but avoid payroll taxes. The after-tax difference is what makes the allocation worth negotiating carefully.