Q: A person got paid the wrong amount for their work from 2010 to 2015. They settled with their old boss for $30,000 on July 8, 2016. Now they're retired and taking care of their disabled wife. How should they handle this payment? Should they divide the $30,000 among the years they were underpaid? And do they need to report it all at once for the 2016-2017 tax year?
A: If you get a lump sum payment for work you should have been paid earlier, you only report it for the year you actually get the money. So, in this case, it goes on your tax return for 2016-2017. You can't spread it out over the past years you were underpaid. And the employer should still take out taxes from the payment.
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