Direct answer
Non-compete settlements stack with stock sales: settlement money hits the W-2/1099 lines, sales run the 1099-B audit, and fee shifts change the net. The post-exit trail is read in the payment year, not the clause year (see the settlement guide in settlements ).
Updated November 9, 2026 · Reviewed against US FTC — competition policy
Non-compete settlements stack with stock sales: settlement money hits the W-2/1099 lines, sales run the 1099-B audit, and fee shifts change the net. The post-exit trail is read in the payment year, not the clause year (see the settlement guide in settlements).
The Sales Lines
- 1099-B & basis: RSU vesting basis, option exercise basis, wash-sale windows across accounts, and the brokerage trail (see the 1099-B guide and the wash-sale rules).
- Fee shifts: loser-pays and statutory fees add income lines; the fee rules are in the fee guide, venue in the fee-shifting guide.
- Trading windows: plans survive separation, 10b5-1 binds, insider rules follow SEC lines (sec.gov); the exercise clock is in the exercise guide and the 409A trail in the 409A guide.
The clause map is in the non-compete guide, the 2026 outlook in the 2026 map, SGA weeks in the SGA guide, and the public trail in the records guide.
Put the rule into action
Write the letter with the free Non-Compete Disclosure Letter generator. The state pages carry the local payout and notice windows, and the application tracker keeps the follow-up date in writing.
Settlement money and stock money report on different lines
A covenant settlement and a share sale hit the same year but different forms, and the allocation is what makes the net number predictable:
- Wage-type settlement money is reported on a W-2, with payroll withholding, so the gross figure is not the net.
- Damages and interest may be reported differently, and the split should be written into the agreement.
- Fee awards, if you recover fees, are usually income to you, not a reimbursement line.
- Share sales report on a 1099-B with proceeds and basis. RSU basis comes from the vest value, and option basis from the exercise price plus any spread already taxed.
- Repayment lines, such as a sign-on clawback, change the net; ask whether repayment is gross or net.
Ask for the allocation in writing before signing, and read the W-2 entry and the back pay entry so the settlement paperwork matches how you will report the year.
Trade timing while you are restricted
Restriction periods usually bar working, not selling, but three things still limit sales:
- Blackout windows can apply to former insiders, and a plan adopted before separation can bind afterward. Ask the stock administrator in writing whether any window or plan still applies to you.
- Material nonpublic information is the risk to avoid, not the calendar. Do not sell on information you were not permitted to use; ask counsel when in doubt.
- Exercise deadlines keep running. A restricted period is not a pause, and options expire on their own date.
- Wash-sale exposure can be created by purchases in other household accounts, so review lots before harvesting a loss.
Print your exercise dates in the vesting calculator and keep confirmations from the administrator with the settlement file. The sequencing question is usually tax, not law: sell, exercise, or wait changes the year you owe.
Build the net-number worksheet before you accept
Six lines, on one page, in this order:
- Gross settlement money and the allocation by line.
- Estimated withholding and tax on the wage portion.
- Fees you pay, and any fee award you expect.
- Repayments: sign-on clawback, relocation repayment, equipment charges.
- Equity value: vested versus expiring, with the exercise cost.
- Weeks of income lost while restricted, priced against what a stand-down would pay.
Run the cash side in the severance calculator, then compare the settlement against the alternative of a paid stand-down. The decision is arithmetic: a settlement that ends the restriction quickly can beat a larger number that arrives two years later with fee risk attached. Keep the worksheet and the signed allocation in the application tracker beside the deadline dates.
| Money line | How it is reported | Ask before signing |
|---|
| Wage-type settlement | W-2 with payroll withholding | The allocation by line, in writing |
|---|
| Recovered attorney fees | Usually income to you | Who pays, the amount, and the reporting line |
|---|
| Share sale proceeds | 1099-B with basis reported by the broker | Lot records and the basis you actually paid |
|---|
| Clawback repayment | Netted against pay or billed separately | Whether repayment is gross or net of tax already withheld |
|---|
Before you rely on a date or an amount on this page, check it against the California job exit rules page and the New York job exit rules page, along with the Release of Claims definition and the hiring references non competes guide hub. Rules move, and those pages carry the current text.
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Frequently Asked Questions
- Is settlement money from a non-compete taxable?
- Wage-type amounts are reported as wages with withholding, while damages and interest may be treated differently. Ask for the allocation in writing before signing, because the split determines what you report and how much you keep.
- Can I sell stock during a non-compete restriction?
- Usually yes, since covenants restrict work rather than ownership. Confirm in writing whether any blackout window or trading plan still applies to you as a former insider, and avoid trading on information you were not allowed to use.
- Do attorney fee awards count as income?
- Fee awards paid to you are generally treated as income, even though they reimburse legal costs. Ask how the award will be reported and whether the payment is made before or after your own fees are netted out.
- How do I compare a settlement against a paid stand-down?
- Put both on one worksheet: gross, allocation, withholding, fees, repayments, equity value, and the weeks of income the restriction costs you. A smaller settlement that ends the freeze quickly often beats a larger number arriving with fee risk and delay.
Sources (official record — verify before filing)
US FTC — competition policy