Union said it will be paid as regular salary not as a bonus, so you will be taxed at what ever your income bracket is. If you want it to go into your 401k then you will need to adjust your contribution amount for that pay period so that what ever the percentage of your payout is, is what you contribute. If it is done in this manner then it will all come out pre-tax. Keep in mind the what the 401K IRS max is though. I believe it is $17,500 so if you are in the group that gets a fairly large sum you could hit your max very quickly for the year. In that case you may want to seek an IRA or other investment vehicle to shelter your income.