Do you pay taxes on a settlement from your last employer?

IRS regulations can be very complicated, these type cases usually need to be addressed on an individual basis. In general if the monies replace taxable income then the entire amount is subject to taxation. If it is a personal injury award taxes could be owed on a portion or the entire amount depending on the circumstances. The best and safest option would be to consult a CPA or attorney who is versed in tax codes * Interestingly, I have been doing a lot of research on the rules for this, especially how to report and if or what portion is to be withheld), for some employers. Certainly, any specific type of payment can get involved with many things (especially payments as part of pensions, or early returements, etc.). However, if I can make a broad but yet almost always true generalization: If the payment is from a current or EX employer, to a current of EX employee, the IRS requires it to be reported by a W-2 (for FICA purposes if nothing else), or 1099, with proper identification as to type. Following that as the recepient should give you the right result.