Are Payments From a Structured Settlement Annuity taxable?
John Darer • March 7, 2019
It's a trick question
Shocking Fact About Structured Settlement Annuities
A common misconception is that structured settlement annuity payments are always not taxable. This is not true. While many
types of cases are resolved using structured settlements, there are instances where structured settlement annuity payments could be taxable. The fact is that structured settlement annuities have absolutely nothing to do with the taxation of structured settlement annuity payments.
A structured settlement is merely the vessel on which the damages travel to the payee.
The Proof is in the Damages
It is the damages that the annuity payments represent that affects the taxation of the annuity payments.
- If the payments represent damages on account of personal physical injury, physical sickness, or wrongful death, then the damages will be tax free, consistent with and within the meaning of IRC Section 104(a)(2)
- If payments represent workers compensation, then such payments will be tax free , consistent with and within the meaning of IRC 104(a)(1)
- If the payments represent damages as compensation for wrongful imprisonment, such payments will be tax free, consistent within and within the meaning of IRC 139F
- If payments represent taxable damages, then such structured settlement annuity payments will be taxable.
John Darer reviews qualified assignment best practices. It starts with an understanding that a qualified assiignment is an "assignment of a liability to make periodic payment as damages" of the charactaer described in IRC 130(c) and IRC 104(a)(2) or IRC 104(a)(1)
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A Qualfied Assignment Release and Pledge Agreement (QARP) is a type of qualified assignment that gives a structured settlement payee a security interest in the qualified funding asset pursuant to the Uniform Commercial Code (UCC).
It bears remembering that, prior to 1975, children in the USA with intellectual disabilities, physical disabilities and even sensory disabilities were not guaranteed access to a public education.
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