EEOC Mediation Program: Preparation, Settlement, and Taxes

The EEOC mediation program is a free, voluntary process that lets an employee and employer try to settle a discrimination charge with the help of a neutral mediator, usually within three months instead of the roughly ten months a standard investigation takes.¹ In fiscal year 2025, 70% of mediated charges reached a resolution, returning nearly $245.3 million to charging parties.²

Which Charges Qualify

After a charge is filed, the EEOC screens it to decide whether mediation fits. The agency weighs the nature of the dispute, the relationship between the parties, how complex the case is, and what the employee is seeking. Mediation is offered early, usually before an investigator is assigned.³

Some charges are held back. The EEOC excludes class and systemic charges, charges filed under the Genetic Information Nondiscrimination Act, and charges filed solely under the Equal Pay Act. It also keeps any charge where a public-interest investigation would be more appropriate than a private settlement.⁴

Both sides have to agree to participate. There is no fee. If one party declines, the charge goes back to the regular investigative queue with no penalty and no negative inference drawn against the party that said no.³

How to Prepare

Before the session, both parties sign an Agreement to Mediate that sets ground rules and confirms each side’s commitment to the process.⁵

Bring the documents that support your position: personnel records, pay stubs, written communications, and a clear timeline. If you are the employee, put a dollar figure on your losses. Calculate lost wages, estimate the value of missed benefits, and think about the non-economic harm you experienced. A realistic bottom line keeps the conversation focused instead of vague.

Who attends matters as much as what you bring. All parties to the charge should be present. Either side may bring an attorney but is not required to, and the mediator decides what role the attorney plays. The employer’s representative must know the facts of the charge and have authority to settle. A representative who has to call the office for approval slows everything down.¹

What Happens During the Session

A typical session runs three to four hours, though complex cases go longer.¹ The mediator is neutral and has no stake in the outcome.³

Sessions usually open with a joint meeting. The mediator explains the ground rules, and each side gives a short overview of its position. After that, the mediator moves the parties into separate rooms, called caucuses. Most of the real work happens there. In private, the mediator can test the strengths and weaknesses of each position more candidly, carry offers and counteroffers between rooms, and help each side adjust its expectations. The shuttle continues until the parties reach an agreement or decide they cannot.

Sessions may take place at an EEOC field office or over a secure video platform. The format does not change the process much.

Damage Caps That Shape Offers

Knowing what a court could ultimately award helps both sides set realistic numbers. Federal law caps the combined total of compensatory and punitive damages based on the employer’s size:⁶

15 to 100 employees: $50,000
101 to 200 employees: $100,000
201 to 500 employees: $200,000
More than 500 employees: $300,000

The caps cover future economic losses, emotional distress, pain and suffering, and punitive damages combined. They do not apply to back pay, which is calculated separately. Under Title VII and the Rehabilitation Act, back pay is limited to the two years before the charge was filed and must be reduced by any wages the employee earned from other work during that period.⁷

Front pay may also be on the table when returning to the job isn’t practical. It applies when no comparable position is available, the working relationship has deteriorated beyond repair, or the employer has a history of resisting anti-discrimination requirements.⁷

The Settlement Agreement

When the parties agree, the mediator helps them draft a written settlement agreement during the session. It is a legally binding contract, enforceable in court like any other settlement of an EEOC charge.³ The document spells out the specific obligations: monetary payments, changes to employment records, agreed references, policy modifications, whatever the parties negotiated. Once signed, the EEOC closes the charge and does no further investigation.⁸

Drafting matters. Vague language about “best efforts” leaves almost nothing to enforce later. Specific dollar amounts, deadlines, and clearly described actions make the agreement useful if there is a dispute down the road.

If the employer later fails to follow through, the employee should contact the EEOC’s ADR Coordinator in writing.³ Because the agreement is a contract, a breach can also be taken directly to court for enforcement.

Confidentiality

Everything said during mediation stays in mediation. Settlement offers, admissions, internal strategy discussions, and the mediator’s notes cannot be shared with EEOC investigators or used as evidence in court if the case does not settle. The Agreement to Mediate and federal dispute resolution principles both prohibit disclosure of mediation communications, whether the session was in person or by video. That is what lets both sides speak candidly about what they actually want and what they would accept.

If Mediation Doesn’t Settle

Not every mediation produces a deal. When it doesn’t, the charge simply returns to an investigative unit and is processed like any other charge.³ Nothing said in the room follows the charge forward.

An EEOC investigation takes roughly ten months on average.⁹ If you don’t want to wait, you can request a Notice of Right to Sue once 180 days have passed since you filed the charge. The EEOC is required by law to issue the notice at that point if you ask. Once you receive it, you have 90 days to file a lawsuit in federal court. Miss that window and you may lose the right to sue.¹⁰

Taxes on the Payment

Settlement money is not all treated the same at tax time. Damages received for physical injuries or physical sickness are excluded from gross income.¹¹ Most EEOC settlements involve discrimination, retaliation, or emotional distress, none of which qualify for that exclusion, so the payment is generally taxable.

Back pay is taxed as wages, subject to income tax withholding and payroll taxes. Compensatory damages for emotional distress are taxable as ordinary income. The narrow exception is that you can exclude the portion of an emotional-distress award that reimburses you for actual medical expenses you paid out of pocket and did not previously deduct.¹¹

Attorney fees paid in connection with an employment discrimination claim are deductible as an above-the-line adjustment to income, up to the amount of the settlement included in your gross income. The deduction covers claims under Title VII, the ADA, the Age Discrimination in Employment Act, and a broad range of other federal, state, and local employment laws.¹² Without this deduction, you could be taxed on the full settlement even though a significant share went to your lawyer, so tell your tax preparer about it.

If the settlement agreement doesn’t allocate the payment among categories, the IRS may treat the entire amount as taxable. Negotiate a clear allocation in the agreement itself, specifying what portion covers back pay, emotional distress, and attorney fees. Employers typically report back pay on Form W-2 and other settlement components on Form 1099.¹³

1
U.S. Equal Employment Opportunity Commission. Mediation
2
U.S. Equal Employment Opportunity Commission. FY 2027 Agency Performance Plan and FY 2025 Agency Performance Report
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U.S. Equal Employment Opportunity Commission. Questions and Answers About Mediation
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U.S. Equal Employment Opportunity Commission. Questions and Answers Universal Agreements to Mediate (UAMs)
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U.S. Equal Employment Opportunity Commission. Agreement to Mediate
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Office of the Law Revision Counsel. 42 USC 1981a – Damages in Cases of Intentional Discrimination in Employment
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U.S. Equal Employment Opportunity Commission. Chapter 11 Remedies
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U.S. Equal Employment Opportunity Commission. Resolving a Charge
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U.S. Equal Employment Opportunity Commission. What You Can Expect After You File a Charge
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U.S. Equal Employment Opportunity Commission. Filing a Lawsuit
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Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness
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Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined
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Internal Revenue Service. General Instructions for Certain Information Returns